Here’s a story that will get you excited. Back in 2012, I started trading with just £500.
That was after I’d been told time and time again that I needed at least £10,000 to start trading properly.
By the end of the following year, I had grown that £500 into £7500.
Learning how to start trading stocks with a little money was a life-changing moment for me and in this guide I’m going to show you how you can do it too.
You Can Start Trading Stocks Without Much Money
It took me years to save up enough spare cash to start trading but in 2012, I finally deposited £500 into a trading account and started my trading journey.
The biggest thing I learned after my first year of trading is that if you want to make enough money to leave your 9 – 5 job and take back your freedom, you have to either start with a lot of money or trade patiently and consistently for years until you have a lot of money.
Whilst you can technically buy £500 worth of a particular stock easily, the problem is that even if the share price doubles, you’re still only making another £500. There are two things that make this scenario unworkable for you if you want to get a jump-start on your new life quickly;
- You will not make 100% return each time you invest (if ever).
- You will be wrong sometimes and have holdings that make a loss.
Like you, I wanted to start my new life quickly, so trading stocks the traditional way wasn’t possible for me at that time.
So, is this your trading dead-end? Absolutely not! On the contrary, this is where your journey begins because I found another way to start trading stocks without much money.
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How I Started Trading with £500
During my year playing trading games and demo accounts, I was introduced to a number of different ways to trade. It turns out that ‘trading’ has many facets.
The one you’re probably most familiar with is the idea of buying a particular stock; holding it until it’s price has increased, and then selling it for a profit. This is ‘stock trading’ as you know it but the way I eventually managed to get into the markets properly without much money was through another type of trading, known as Financial Spread Betting.
Spread betting allows you to trade on financial markets and make large gains without needing much money to get started.
What’s the Difference Between Stock Trading and Spread Betting?
In straight-up stock trading, you buy the underlying asset, the actual ‘stock’ (or shares), of the company.
In Spread Betting, as the name implies, you place a ‘bet’ on whether you think the price of a stock is going to go up or down. You do not ‘own’ anything as such.
Although spread betting is regulated in the UK by the Financial Conduct Authority, you should read my article about whether spread betting is gambling or not before you embark on your own spread betting adventure (spoiler alert, it is, but you can stack the odds in your favour).
Without spread betting, I would not have been able to start trading with so little money and make the returns I made. How comes, you ask? Well, let’s take a look at how you make money in stock trading vs spread betting.
How Do You Make Money Trading Stocks?
With stock trading, you simply buy the shares of a company to the value of cash you have available. When you own shares, you are entitled to a dividend (if the company pays one) and can sell your shares later if they appreciate in value.
For example, if you have £500 and you want to invest in a company, you would deposit your £500 into an investment vehicle like a tax-free Stocks & Shares ISA or Self-Invested Personal Pension (SIPP) with a broker and buy £500 worth of shares in the company you want to invest in.
You can make money in two ways by investing in companies this way:
- You will receive a dividend payment (if the company pays one) whilst you are a shareholder. You will receive a dividend for each share that you hold.
- If the value of the company (and thus the price of the shares) increases whilst you are a shareholder, then you could sell your shareholding and pocket the capital gain you made from the increase in value.
This is relatively straightforward, but as we already discussed, you need to start with a lot of money to make a lot of money if you want to see a quick return. If you’re investing for the long term and you don’t need a quick return, then stock trading may be the better option.
How Do You Make Money Spread Betting?
With spread betting, you are not buying the underlying asset (the shares), but are speculating on its price.
You can speculate on whichever direction you think the price of an asset will move – up or down. If your prediction is correct, you make a profit but if you are wrong, you incur a loss.
The main difference, and benefit for you if you don’t have much money to start with, is that spread betting allows you to take advantage of leverage. You only need to put up a fraction of the full value of the trade – known as the ‘margin’ – to gain full exposure.
This means you can get started with less money.
Spread Betting Gives Small Account Traders Access to the Financial Markets
Because of the leverage involved, spread betting allows you to participate in the markets even if you don’t have much money. As a consequence, the returns on spread betting can far outweigh the returns on traditional stocks & shares investing over a shorter space of time for less money invested.
On the other side of that coin, the losses can do the same.
Spread Betting Offers Better Returns If You Don’t Have a Lot of Money
Let’s say you have £500 to start trading with. You could deposit that money into a Stocks & Shares ISA and buy £500 worth of shares in Just Eat PLC (EPIC: JE.).
At today’s market price, after your £5.95 share dealing fee, you would be able to buy 77 shares in Just Eat for your £500.
To make money in Just Eat, you’d either need the company to pay a dividend (XXp per share) or sell the shares later after they have increased in value.
Just Eat have never paid a dividend yet so you wouldn’t earn any money that way and since November 2018, the share price has only increased by 3.4%. What that means in practice is that if you bought shares in November 2018, and held them until now (approx 8 months), you would only have seen your capital appreciate by 3.4% before any trading fees.
That works out at about £11 profit over 8 months after fees.
Of course, there is the perfectly valid argument that if you sold your shares at the ‘right time’ you could have made much more. For example, in April the shares were trading 36% higher than the November 2018 price, which would have been a profit of £172 if you bought in November and sold in April.
You still would have had to hold for 5 months and get out at the right time to achieve that gain.
Spread betting works in a different way which makes it more attractive if you don’t have much money to start with.
Comparative Spread Betting Example Based on a Small Account Size
If you deposited that £500 into a spread betting account with a broker instead and placed a good trade, you could have achieved the same gain in a much shorter time.
Let’s say you thought the price of Just Eat was going to go up in November 2018. You could have placed a ‘long’ position in Just Eat on 20th November 2018 for £5 per point when the price was 552.5.
For each point the share price went up, you would have profited £5.
Four trading days later (markets are closed on weekends), on the 26th November, the price reached a high of 617. That’s 65 points difference. If you had been in that position for £5 per point since November 20th and cashed out on the high of the 26th November, you would have made £325 profit.
As you can see, you can make quick gains with spread betting, but its not without its risks.
Making sure you have proper risk management in place and working within your margin requirements are ways you can mitigate against those losses, but the principle above illustrates how spread betting can help you start trading stocks when you have little money to start with.
Want to Learn How You Can Start Spread Betting Without Much Money?
If you’d like to learn more about how to get started trading stocks when you don’t have much money, you should watch my free video series on YouTube where I take you through the entire process.
Feel free to post comments and ask questions – I’m usually pretty attentive and responsive!
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Remember! I’m not a trainer or teacher, I’m just sharing stuff I’ve learnt and done that has made me money (and still makes me money today).
And finally, as always, don’t forget that life comes first, trading second. Make sure you enjoy your family and friends whilst you’re fit and healthy enough to because they are the most important thing in your life.
Be happy. Trade well!