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The Black Guide to Getting into the Stock Market – Part 2

One of the biggest misconception about the stock market is the idea that you need money to even think about trading stocks. There is some truth to that idea, however, how much money needed in reality is surprisingly low. 

Many times when I speak to people about starting in the stock market, it is truly sad that everyone feels like they need to inherit a large amount of money, win some kind of huge legal settlement, or win the lottery.  

If you do not have $1000.00 (A recommended amount to start) at your disposal, you can simply save your way into having enough money to begin trading. There is an actual goal that most beginning traders try to reach and that number is $25,000.

Also, if you haven’t already, read The black guide to getting into the stock market part 1.

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PTD Rule

If your goal is to become a Day Trader, $25,000 is what you need in your securities accounts to avoid getting in trouble with the SEC (The Securities Exchange Commission)

PTD stands for Pattern Day Trader. This rule dictates that unless you have 25K in your securities account, you can only day trade up to 3 times within a week. A day trade is a trade that you open and close within a stock market day. If you buy 100 stocks of ABC at 9:30AM on Monday and sell those same stocks before the market closes that day, that is a day trade. 

The SEC believes that if your securities account has less than 25K, then you are a novice. As a novice, the PTD rule is setup to protect you from losing all your money.  You don’t need 25K to trade, you only need 25K to day trade every day. You can swing trade and do what some would call regular trading (Trades that take at least a month or more) to your hearts content.  

Just remember that you cannot day trade more than 3 times within a week unless you have that 25K in your securities account.

If you want that 25K but have no idea how to get it, start simple and save for it. Once you’ve opened a security account you can add money to the account a little at a time and you don’t have to break the bank to do it either.

 If all you can afford is $1.00 each paycheck, then so be it. There is no shame in that. Of course, it would be best to add as much as you can, but do what you can do. It may even be a good idea to sacrifice certain things for a time just to fund your securities account; it will pay off in the long run.

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Bottom Feeders, True Penny Stocks & Regular Penny Stocks

Officially, according to the SEC, the organization that regulates the stock market here in America, a penny stock is any stock whose worth is below $5.00. Most companies that are in the penny stock realm are worthless, However, they are attractive because of their volatility. I’ve broken penny stocks into three categories.

1.       Regular Penny Stocks/$1.01 – $4.99.

2.       True Penny Stocks/$0.50 – $1.00

3.       Bottom Feeders /$.49 and lower

Bottom Feeders

The great thing about penny stocks is that you do not need much money to trade them. If you are dealing with bottom feeders, you can do good with stocks as low as $0.0001 (Yes, there are stocks out there that low). All you’d need is $1.00 to get 10,000 shares of such stocks. If this stock rose to $0.001, you’d profit $10.00. 

The downside to bottom feeders is the fact that they are easily susceptible to pump and dumps and they can easily be manipulated. Nonetheless, if you are in and out at the right time, it could be some good money

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True Penny Stocks

Stocks that are $0.50 to $1.00 are more solid penny stocks with more financial backbone, less susceptible to manipulation and are more frequently volatile than the bottom feeders. This provides more opportunities to make and lose money. These are the lowest of penny stocks that I deal with. If you have $500.00 to $1000.00 dollars, these are good stocks to start with

Regular Penny Stocks

Regular penny stocks are still volatile, but are the safest of the penny stock trio. These companies have more financial stability, and some of them were regular stocks at one point. I mostly day trade with these types of penny stocks. Penny stocks within the range of $1.01 – $4.99 can be a good place to start if you have $5,000 to $10,000 to start

If you do not want to deal with penny stocks, you can take a stab at regular stocks, however, keep in mind that succeeding in the stock market often comes down to buying a good amount of shares. 

You can buy 5 shares of Apple at $198.78 a share (The current price as I type this), a total of $993.90. With only 5 shares, if Apple’s stock rise to $200.00, you’d have a profit of $6.01. 

Of course, if you keep those 5 shares for a few years and Apple goes up to $300.00 a share, than you will be $500.00 in profit. As you can see, it all depends on your strategy and goals

Options

Another affordable way to start trading is if you trade options. Options are awesome because you can trade companies like Apple with Penny stock money. Options are a totally different animal than trading stocks and once you get your feet wet with stocks, options are the next step up. After options, it would be good to look into futures and Forex

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Other People's Money

I’ve saved the best for last because this should also be a goal. Once you have become good at day trading, there are organizations out there willing to fund day traders. We are not talking about a few hundred dollars here. We are talking about tens of thousands of dollars. These organizations usually keep between 10%-30% of the profits allowing you to keep most of the money you make. 

 This may sound like a scary prospect, however, it is extremely safe. You usually operate under a highly secured securities account that will not allow you to lose all their money. It is a true win-win situation where you lose far less than the organization would

This should be every trader’s goal. Millionaires have been made through such unions in the stock market but once again; before you get into such a deal, you must be good at day trading. These organization will not just give you money, you must prove that you know how to manage risk more than anything else.

 If you want to go this route, I strongly recommend that you paper trade at least for a year, and then actually trade for an additional 6 months before you begin to seek this avenue of getting funded. If this is something you truly want to do, let me know and I’ll direct you down the right path.

Comment below if you found this article helpful or if there are any specific questions you have regarding investments.

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