Arbitrage Pricing Theory : The valuation model of financial assets

Understand trading
Arbitrage Pricing Theory : The valuation model of financial assets

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This is one of the most frequently asked questions by novice investors. How much capital does it take to start trading in good conditions? Find some answers below.

Do not forget to take into account the brokerage fees

To be able to invest in the stock market, you will go through an intermediary. This one will execute your orders (a stock buy order for example) and, in return for this service, they will charge an intermediation fee. Generally, the fee is equivalent to 0.1% of the transaction amount, with a minimum of 5 euros on average. Concretely, this means that you will pay at least 10 euros for the purchase of a share that you intend to sell later. To make a profit, you must be certain that selling this stock will grant you more than the brokerage fees. By placing a small order, you might not get any surplus value. Before placing an order, take the time to make a small calculation on the gains made by the operation.

Use leverage carefully

Leverage allows you to invest more money without having it. This stock market tool gives you the opportunity to increase your earnings tenfold. Thus, if you have a capital of $3000, with the leverage effect, you could invest 3, 4 or even 5 times that amount. However, we must not forget that leverage can also produce the opposite effect. Thus, in the event of a market downturn, your losses will also be multiplied. It is therefore important to know the inner workings of the stock market before using it. When you start trading, do not expect a lot of money right away. Learn little by little how to control the leverage.

How much capital do you need to start trading?

If you have at least 2000 dollars, you can invest well in the stock market. In order to minimize the risks of trading, you should diversify your portfolio. With this amount, you can trade four different stocks at once. For example, if the market was not favorable for one or two stocks, the other two could earn you money.

Finally, you should always keep in mind that the stock market is a risky investment. You could make attractive gains, but you could also lose all of your capital. So, only risk the amount of money that you feel comfortable allowing yourself to lose.

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