Friends, you probably heard stories about people who made their fortunes in the stock market and most likely would also like to try yourself as an investor or trader who earns by trading or by long-term investments in the assets of a company. But what is stopping you? Lack of initial capital? This is not a problem because it is not necessary for a successful investment to have a large amount of money. At the initial stage, for these purposes, it is quite possible to postpone a tenth of your income.
In the first years, the amount will be small, but after a few years, thanks to constant investments and reinvestments, it will turn from a small snowball into a huge snowball. The main thing in this business is not to stand still, gain experience and properly manage your funds. We’ll talk about the last point today.
Hereinafter, I will use as an example of the specification of contracts with the InstaForex broker, which provides some of the best trading conditions for novice traders and investors.
I also want to focus your attention on the fact that instead of buying/selling shares in InstaForex, you can trade a derivative instrument – CFDs on shares. By and large, you will not notice the difference, because Dividends will be charged or deducted to your account in the same way (depends on the type of transaction). And such a solution has an undeniable advantage – there is always the opportunity to open both long and short positions (other brokers may not be available).
At the initial stage, I recommend not to take expensive stocks to work, as they have a large spread and require a large number of free funds to buy them.
Choose stocks with a price tag of up to $ 100 and a spread in the range of 2-5pp.
- Fixed leverage of 1:10 is provided for trading CFDs on shares. This means that no matter what leverage you put in your personal account when trading CFDs on shares, the margin involved in transactions will be calculated in accordance with the leverage of 1:10. Difficult? I will explain it in a simple way. If you have $ 1000 in your account, then you can buy shares for $ 10,000.
- 1 lot CFD is always equal to 100 shares. Thus, trading a minimum volume of 0.01 lots, you buy 1 share. To simplify the calculations, I recommend operating with this minimum value, since the terminal shows the value of 1 share.
Take for example the shares of the retailer JC Penney Company (ticket – #JCP). At the moment, they cost $ 1.04.
If you have $ 100 in your account and you want to buy shares of this company on them without using credit funds, then to calculate the size of the position to be opened, you first need to divide this amount by the cost of 1 share (spread = 2pp or 2 cents, you can neglect it).
$ 100 / $ 1.04 = 96 shares
And since 1 share is 0.01 lots, then 96 shares should be divided by 100.
It turns out that on an account of $ 100 you can open a deal in 0.96 lots.
If you decide to take out a loan, then, in this case, the maximum size of the opened position will be 9.6 lots.
I recommend using credit only during intraday trading, as using stop loss you can limit the size of possible losses.
If you transfer the position to the next day, it is better not to use leverage above 1: 4, and for long-term investments, you should only rely on equity.
In this case, you will protect yourself from unnecessary losses during short squeezes and gap-s.
Friends, if you have any questions, you can ask them in the comments on this article.
All more profit and successful investment!