Not everyone can afford the minimum balances required by some stock brokerages – $2,500 or $5,000 and up. The problem with small stock trading is that a commission, no matter how small, becomes a big obstacle to profits. For example, $7 commissions is pretty cheap these days and if you buy and sell a stock, your total commission cost would be $14. If you made a small $250 trade then the commissions ate up 5.6% of the trade. If you made a gross profit of 10% then commissions cuts your profit in half; before taxes.
As a rule, I try not to make a trade where commissions are more than 1% of the purchase. So if my commission is $7, then I need to purchase over $700 worth of stock to keep the commissions under 1%.
While zero-commission companies pop-up every once in a while, there is a company, Loyal3.com that allows you to trade stocks with no commissions along with partial or fractional shares. So you could buy $10 worth of a Coca-Cola share, even though the shares are trading at $43 today. Of course, to offer tiny purchases, partial shares, and no commissions, there are some restrictions. But at least you can get into the game of stock investing with very small amounts of money.
Remember, you can purchase stocks that pay dividends. For example, buying $10 worth of Coca-Cola will still pay you dividends that will yield 2.84% per year. There is no bank that is going to allow you to open a savings account with $10 and most will not pay an interest rate over 0.01%. In this case, your $10 in Coca-Cola would be earning 284-times as much money as any bank savings account.
You can setup your account to automatically pull $10 from your credit card each month to make a purchase. This way, you also earn credit card reward points or cash back from your stock purchasing as a bonus.
Loyal3 has some restrictions and disadvantages, but it offers even the tiniest investor an easy way to enter the stock investing arena.