How much capital do you need to start trading?

This article talks about the minimum capital required for trading. There is no minimum amount of capital for trading, the amount that suits you is best for the market. This article also describes various factors to consider before entering the share market for trading.

· 3 min read
How much capital do you need to start trading?

When a person enters the world of the share market, the very first question that comes to his mind is how much capital he needs to start trading. Well, the answer to this question is simple that there is no minimum capital requirement to start trading. A person with just Rs. 10 in his pocket can trade in the share market. These are all myths that one cannot start investing or trading unless they have thousands and lakhs of money.

As of September 2021, there are so many popular companies whose stock prices are less than Rs. 100. Electronic trading had further reduced capital requirements for trading. Many depositors and online brokers do not even require a minimum deposit amount. It's ironic that we never think hard enough before ordering food on Zomato or Swiggy or booking cabs from Uber or Ola, but when it comes to trading or investing in the stock market, we become all skeptical towards it. The amount required for trading is even less than one cab ride or one food order. For trading, one needs to open a trading account (Demat A/c).  Although trading involves some charges and maintenance fees, the amount is not big enough to discourage someone from trading.

Basic Charges and One-Time Payments

As to start with trading one requires a trading account or a Demat Account, this involves some charges. For both these accounts, Account Opening charges, and Account Maintenance charges (AMC) will be applicable. Account opening charges may vary between Rs. 200-500, which is a one-time payment. Account maintenance charge can be Rs. 300-500 per year. Further, there are some additional charges associated with buying shares online that a trader must pay. These are generally less than 0.5% of the amount of transactions. This additional charge is known as brokerage charge and is usually less than shares bought through an offline broker. One must keep these charges and fees in mind before he decides on the capital to be invested initially in trading.

Virtual Trading

Although trading can be started with small initial capital, still someone not willing to take that risk can start virtual trading. Virtual or paper trading is like actual trading where one can buy or sell stocks without the involvement of real money. Transactions take place using virtual money provided by the platform. A person can try his hands on virtual trading to gain experience and knowledge before starting real trading using real money. The steps involved in virtual trading is as follows:

  • Open an Account on a simulating platform.
  • On opening the account, we get instant virtual money.
  • We can trade using virtual money.
  • We can also monitor our portfolios and check profit/loss regularly.
  • We can try out different strategies and gain knowledge on trading basics.
  • Finally, after gaining sufficient confidence and experience, we can move to real trading.

Some of the best simulators to learn virtual trading are TradingView, TrakInvest, and moneybhai.

Financial Products Available for trading

There are countless types of financial products which are available for trading. All types of financial products do not necessarily have the same capital requirements. Not every financial product is suitable for a small starting capital. Here is an overview of some of the most famous financial products traded either directly on the stock exchange or Over the Counter (OTC):

  • Shares or Exchange Traded Fund (ETF): Through shares, one can participate in the companies in the owners’ capacity. The dividend is also distributed to shareholders. The starting capital required for this can be variable depending on the share or ETF price. Generally, we can trade in shares using small capital given we select companies accordingly with the smaller share prices.
  • Forex (Currency Trading): When trading between currencies, small initial capital is required. Risks in these transactions are also low.
  • Futures (Forward Contracts): For futures or forward contract one need a larger initial capital due to high position size and tick values.
  • Options & Certificates: The starting capital for options trading is in the middle range. It is not advisable to start your trading journey by option trading as it involves a high degree of research and risk.

Conclusion

As mentioned, several times in this article that there is no minimum capital requirement for trading, so any amount that suits you is good enough for the market. We can start trading with any amount that we are comfortable with. Any amount with which we can purchase a share works fine for entering the market. If someone is not comfortable with directly entering the market, he must gain confidence through paper or virtual trading. In trading, our knowledge of the market, our strategies, and our experience are far more important than the capital we use to enter the market.

If you want to know more about “how to start trading” refer to the article: How to Start Trading - 5 Step Guide to Trading | Pvot

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