As much as the COVID-19 pandemic took from our society, it ushered in a renaissance of people using the internet to make an independent living.
Such is the case of short-term trading. A good example is the GameStop “meme stock” craze in 2021, which revealed the power and earning potential of independent short-term traders.
If you’ve got a little bit of cash and the dedication to learn short-term trading skills, it can be a very profitable career. How much do you need to start trading? Well, that depends, but $500 is a good number to get started.
In this article, we’ll explain how to start trading with $500, and share the right strategies and mindset to sustain the wins in the long term.
Table of Contents
What Is Short-Term Trading?
The invention of stock markets dates back a few centuries. Since then, with each leap in technology, a wider audience of people gained access to markets as an investment vehicle.
It’s helpful to break securities and asset traders into two categories: long-term investors and short-term traders.
Long-term investors perform extensive research on companies or assets before they buy. They examine how prices are likely to move in the future, and hold the stock for long periods, ranging from months to years. They ignore daily price fluctuations, and instead capitalize on a company’s future growth.
Conversely, short-term traders use strategies ranging from a week to a few minutes. They master techniques that allow them to capitalize on brief fluctuations in price—buying when they think it will increase and shorting when they think it will fall.
Short-term trading is a recent phenomenon, which emerged in the late 20th century as computerized trading terminals and data networks spread beyond the cadre of professional traders in places such as New York, Chicago, and London.
Short-term traders are experts at anticipating price movement, monitoring the news cycle, and knowing when to exit a trade. Their work is fast-paced, exciting, and extremely rewarding.
And you can begin your short-term trading journey with as little as $500.
Is $500 Enough To Get Started?
Prior to the launch of Robinhood in 2011, $500 was not enough money to pursue a trading career seriously. The industry was structured to reward stock brokers with commissions when they executed trading orders. This meant that the profit from a trade needed to exceed the amount paid to the broker.
Robinhood kicked off a trend that includes many firms such as Charles Schwab, E*TRADE, and TD Ameritrade, which allow people to trade without worrying about the cost of each trade.
When combined with the ability to purchase fractional shares, commission-free trading lets amateur traders gain a foothold in the market with very little upfront capital.
This capability can be magnified through leveraged trading, which can only be used in margin accounts. Leveraged trading is where a broker agrees to loan you money to conduct a much larger trade. It’s usually stated as a ratio: for instance, if you’re leveraged 1:50, your broker will lend you $50,000 if you put up $1,000.
While that might seem like a huge benefit, it’s also a massive risk. Leverage means you can lose far more money than you have deposited in your account. Most checking accounts won’t let you go $50,000 in the hole, but a margin account will.
When thousands of short-term traders engage in leveraged trading, it can cause massive surges and crashes—creating and obliterating billions of dollars in value in the blink of an eye.
That’s why the US Financial Industry Regulatory Authority (FINRA) established the Pattern Day Trader rule, which limits the number of trades (to four total) in a given week (5 business days) for margin accounts unless the trader maintains a $25,000 minimum balance.
Firms that facilitate retail trading, such as Robinhood, do not offer margin accounts to most traders, so the PDT rule does not apply to most amateur or retail traders.
The other limitation of trading with $500 is that your earning potential is limited, and, if you’re reckless, you could lose the entirety of your deposit in a single trade.
Here’s the good news: the best way to become a short-term trader with $500 sidesteps most of the above mentioned issues.
The 7 Steps to Becoming a Short-Term Trader Using $500
Learning the skills required to become a short-term trader isn’t complicated, but it does take determination and a willingness to study the wisdom of the best traders.
We’ve broken down the path in seven steps, so that you can begin your short-term trading career.
1. Study Short-Term Trading
If you’ve watched the stock market for a while and thought to yourself, “I bet I could make money as a trader,” that’s fantastic. Virtually all professional traders started with zero industry knowledge or skills and simply decided to get started.
The willingness to learn through study and training, reflect on mistakes, and refine strategies separates amateur traders from professionals.
Anyone who tells you can get rich as a short-term trader isn’t telling you the truth.
The best traders become sponges for trading knowledge and expertise. They read books, talk to peers, ask for feedback, and test their ideas constantly. You don’t need a degree from a university, but you do need an insatiable hunger to learn on your own.
Consider starting with topics such as:
It’s easy to start trading within a few weeks, but we recommend you take a few months to grow your knowledge and build your confidence. Find a reputable training course and subscribe to YouTube channels such as TraderTV.Live.
2. Set Realistic Expectations
Nobody gets into trading because they love the idea of losing money. Short-term trading is attractive because there are people who make a great living at it, and the internet makes it easy to hear their stories.
Unfortunately, that leads many new traders to underestimate how difficult it is to make money.
If you open your first account expecting to double your $500 seed money in a week, you’re likely to be disappointed.
You should not pursue a trading career if you’re desperate for money. Desperation leads traders to make foolish trades and lose everything.
The most sustainable and proven way to make money is to do so gradually. Each successful trade builds your confidence and the value of your trading account.
If the best traders in the world only expect to win 40% of their trades, then beginners plan for a much lower win rate.
Once you understand how to implement stop-loss and take-profit orders, you can steadily grow your profits and minimize losses.
A reasonable starting goal is to make $10 a day (after losses). After a month of disciplined trading, you could bring in $200— a 40% return on your capital.
3. Use a Trading Simulator To Train
Often referred to as “paper trading” or a “demo account,” a trading simulator allows you to trade in a fully realistic environment without using real money to conduct trades.
The best traders in the world use trading simulators to test their strategies and validate theories about price movement.
A common mistake for new traders is to jump into the trading simulator using a high-value account. This is exciting but unrealistic. Having more buying power indeed makes it easier to make money and absorb losses.
If you’re going to learn how to build a career for $500, you need to use the simulator the same way. Tell your brain that you will trade as if it were real money. Otherwise, you won’t take the training seriously and lose money when you trade on the live market.
4. Keep a Trading Journal
We cannot overstate the importance of using a trading journal. Some short-term traders like to use a spreadsheet or a digital notes app, while others jot down notes in a spiral notebook.
The purpose of a trading journal is to help you reflect on your trades and spot trends or anomalies that affect your success. It can serve you as:
- A learning tool to identify mistakes and recognize successes.
- A way to maintain accountability and discipline in your trades.
- A progress tracker.
- A laboratory to develop new strategies.
- A way to build confidence through positive reinforcement.
The more detailed you are in your journal entries, the better, including seemingly qualitative data such as your emotional state or physical health.
Review your trading journal at least once a week while learning the basics of short-term trading. Over time, you will refine your journaling technique and how you analyze past trades, but the discipline of journaling should stick with you forever.
5. Study Risk Management
Risk is a two-edged sword, meaning it can harm you as much as it can help you. But a master swordsman knows how to “stick them with the pointy end” and how to use the sword for defense.
Stock trading would be meaningless (and valueless) without risk. The potential to lose money also drives the potential to make it.
Risk management is a discipline that involves multiple skills and a detailed understanding of the environment you’re trading in.
Vital risk management concepts include:
- Risk-reward ratio.
- Entry and exit criteria.
- Stop-loss orders.
- Diversification and correlation.
- Overnight trades.
- Trade sizing.
- Value at risk (VaR).
- Scenario analysis.
- Two-day low strategy.
- Parabolic stop and reverse.
- How to build a risk decision matrix.
After you build your risk management system, make sure to practice it in every trade. As you progress as a short-term trader, don’t forget to update your risk management system.
6. Start With Small Trades
It’s impossible to eliminate risk. Your goal should always be to avoid overextending and losing too much of your portfolio to a bad trade. A good rule is limiting any trade to less than 20% of your total drawdown.
If your starting account is $500, you shouldn’t make a single trade using more than $100. Making just 5% on each trade will earn you $10 a day, even if you only make ten trades.
If one of your trades performs even better than expected, you can celebrate it and resume your disciplined strategy. It’s a fact that you’ll lose money on trades—even the best traders do. It’s a game where you do your best to stack up wins and don’t take the losses personally.
Gradually, you’ll begin to increase your initial $500, and so will your confidence and skills. Only then begin to build up your trades.
7. Consider Prop Trading
Here’s the biggest secret about how to start trading with $500: partner with a proprietary (prop) trading firm, such as Real Trading.
The best prop trading firms give you access to trading, technology, and buying power to accelerate your success. In fact, at Real Trading, you never use your own money to trade.
Once we’ve seen that your performance in the trading simulator is strong enough, we give you access to a trading account with real money that grows with your skills.
As a prop trader, you take home 90% of your profits (for most assets) and don’t shoulder any losses.
What about the $500? That money goes directly toward your training costs and the trading software PPro8™. You also get access to the TMS™ trading simulator.
Becoming a prop trader is by far the simplest and most reliable way to start and sustain a short-term trading career.
However, be warned! There are many so-called prop trading firms advertising on the internet. The majority of them are structured to make money when your trades fail. They also force you to shoulder the losses when your trades go badly.
Research each firm and read the fine print about profit and loss sharing. Many of these firms will also require you to invest significant capital to unlock expanded buying power. That means that your success and buying power aren’t based on merit, but on how deep your pockets are.
That’s a reprehensible way to run a trading firm. Don’t fall for it.
The Value of Mentorship
An overlooked aspect of training to become a short-term trader is mentorship. Self-guiding learning is powerful because you go at your speed. However, sustaining long-term progress without an outside perspective can be challenging.
A professional trading mentor is somebody willing to share their experience and coach you through difficult situations. They can guide your skill development and demonstrate techniques you can’t learn any other way.
Lastly, a good mentor provides emotional support and encouragement on your journey. Short-term trading has its own share of setbacks, just like any other career—perhaps more so due to the volatile nature of markets.
Joining a community such as Real Trading and TraderTV.Live is a great way to meet other short-term traders and learn from peers and mentors.
The Only Way Through Is Through
We’ve said it once and we’ll say it again: short-term trading isn’t a shortcut to getting rich. If you’re committed and hard-working, it’s an exciting profession that can offer a fulfilling career.
You don’t need a university degree or a six-figure bank account to get started. All you need is $500 and a willingness to follow the steps in this article.
At Real Trading, we’re looking for the smartest, most motivated traders that we can find. We provide the technology, training, and trading capital so that you can focus on what you do best: making great trades.
