What you need to know about evaluating the capital to be invested in the stock market :
New investors generally have different ways of evaluating the amount needed for their investment in the stock market. Most often, certain mistakes are made such as not taking into account certain fees such as brokerage fees or spreads.
It is also important to remember here that success in the stock market does not depend at all on the amount invested but on the knowledge and the strategy put in place. The important thing is to carry out actions in relation to the amount of capital available.
Depending on the broker or organization offering investment products, a minimum deposit is often required to open an investment account. But there is no upper limit, which does not mean, of course, that you have to put all your savings into the account.
In the end, when deciding how much to invest in the stock market, you have to take into account both the risks involved and the costs that you will have to face in the context of a trading or investment activity.
Taking into account the risks when choosing the capital to be invested in the stock market:
The first element we would like to talk about here is of course the risks associated with investing in the stock market. Although this is a relatively rare occurrence, it is possible that you could lose your entire investment due to a fall in the markets or a bad strategy.
This is why you should think twice before injecting money into your trading account. In order for you to have peace of mind when placing orders, the money you bet should never be money you might need. The stakes would be too high and the stress would make you make bad decisions anyway.
But then how do you evaluate what you can invest and what you should keep? The answer to this question is complex and will depend on each person's profile, personal and professional life and specific projects and needs. Indeed, it is always preferable to keep some precautionary savings in case of a hard blow. If you have been saving for years, invest your savings in the stock market and lose everything, you could face serious problems.
This is why many stock market investors decide to invest only a small portion of their savings in the stock market.
The risks of leveraging your capital in the stock market :
Another risk that we would like to inform you about is the one linked to the use of leverage. If you invest in the stock market using specific products or instruments such as CFDs or SRDs, this leverage is advertised as a way to invest more money than you actually have in your trading account. Here, your cash is only used as a hedge. According to European regulations, this leverage can allow you to invest up to 5 times the amount you have. It can be tempting for an investor with little capital to use this leverage in the hope of generating more income on small trades. However, as we will see here, this leverage actually represents a very high risk and can make you lose your entire capital very quickly.
Indeed, leverage is a double-edged sword. It can multiply your gains if you are right, but it can also multiply your losses. Thus, a minimal variation of 10 in the price of the stock on which we invest can have dramatic consequences on our portfolio.
The danger of leverage is all the greater because it is often investors with a small amount of money invested in the stock market who use it. These traders are also often the least experienced and therefore the most likely to make losing trades on the markets.
Consider the impact of brokerage fees before deciding how much to invest:
Another mistake that is frequently made by investors who are new to the stock market is not taking brokerage fees into account when calculating the amount to invest.
Indeed, whatever the way you wish to invest in the stock market (CFD, securities account etc.), it is normal that your intermediary, broker or bank, should be paid.
For traditional investments made through a bank investment product such a securities account, a stock market order costs an average of 0.1% of the amount invested with a minimum of €5 on average. It should also be noted here that when you buy and then sell securities, you are actually placing two orders and these fees are therefore charged twice, whether you win or lose.
If you use a CFD trading platform, it is the spread - a small difference in price between the actual price and the price at which you are going to buy or sell - that is taken into account.
In conclusion, never invest in the stock market more than you need or all your savings and remember to take into consideration the fees that will be added to your transactions.