2 Big Reasons It's Cheaper Than Ever to Start Trading Stocks

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KEY POINTS

  • Trading stocks can help you build wealth.
  • Many people assume it's expensive to trade stocks.
  • Changes that brokerage firms have made have resulted in investing becoming cheaper.


Don't assume it's expensive to invest money and start building wealth.

Trading stocks can help you to grow your wealth if you invest wisely. You can actually beat the market and earn very impressive gains if you pick the right stocks to buy and you focus on building a diversified portfolio of assets you're comfortable investing in for the long term.

Traditionally, you needed a reasonable amount of money to be able to trade stocks effectively so it wasn't the right choice for everyone. The good news is, though, that now you no longer need to be rich and have a huge amount of cash just to be able to benefit from this method of investing.

That's because trading stocks has become very inexpensive for two key reasons.

1. The elimination of commissions

One of the biggest reasons you no longer need a lot of money to invest is that most stock brokers have eliminated the commissions you used to have to pay to buy or sell assets. These commissions generally ranged from around $6 to around $14 per trade and you had to pay them when you bought stock as well as when you sold it.

When you owed commission, it wouldn't make sense to invest unless you had a reasonable amount of money. If you tried to invest, say $10, then $6 would be eaten up by the commission to buy assets and you'd have only $4 left over to actually purchase stock shares. And if you wanted to be able to sell and pay another $6 commission, you would have to more than double your money.

The good news is that brokerage firms have generally done away with these fees. Now, you can buy and sell assets for $0, so even if you have a small amount to put into the market, it's worth doing since commissions won't eat up all your money.

2. The availability of fractional shares

There's another huge reason why it's now become cheaper and easier than ever to begin trading stocks, and it's the increased availability of fractional shares. Traditionally, investors would end up owning a fraction of a share only in certain situations such as when stock splits occurred. But brokerage firms began offering the opportunity to buy partial shares.

This means you no longer need to specify the number of shares you want to buy, nor do you need to have enough money to buy a full share to be able to invest. If you have only $10, you can buy just about any stock you want but you'll end up with only a part of a share instead of a whole one. With a $10 investment, for example, you could buy 1/10 of a stock with a share price of $100 per share, or even 1/100 of a stock with a share price of $1,000 per share.

Since you aren't limited to buying stocks only with low share prices and you don't have to pay commission, you can invest even if you have hardly anything to put in the market to begin with. This way you can slowly build up your portfolio over time.

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