The answer is, a) how you make money, and b) how the information you are holding can impact your margin requirements.
You probably want an index fund to trade as an actively managed portfolio. Index funds require that you have at least $1,000 to trade. This isn’t an insurmountable barrier for anyone, however. In fact, the only real barrier is money. If, for example, you have a brokerage that offers mutual funds in your portfolio, your brokerage can sell it to an index fund ETF and pay you the regular fee.
As you can see, there’s really a lot of trade flexibility out there. The only way you have to worry about the $1k barrier is for an investor who is actively playing the game. An investor who doesn’t actively trade doesn’t have to worry about an index fund’s cap.
On the flip-side, you have to worry about the $1k cap if you are actively trading. This is most often true when you are in a market that has big price swings over short periods of time. If the price swings too much over a long period of time, this kind of investment can be very costly.
Is there any way to trade like an ETF that’s cheap to buy? That is, if you know exactly what you are investing in?
You betcha. The answer, I can tell you, is yes. This is because ETFs (short for Exchange Traded Funds) allow you to trade on a price discovery basis.
The ETF is essentially a market maker, and it buys and sells a variety of exchange-traded and “pure” stocks. However, the stock selection is very narrow. The ETF’s function is to provide a market maker. Instead of passively purchasing a stock, you have essentially a market maker betting against the stock itself.
There are a couple more things you need to know about an ETF and their functionality.
The ETF must have at least $50 of cash (and perhaps a minimum of $125 of margin). You must invest these funds in an ETF. However, this can be done in a number of ways. First off, you can invest the funds electronically in the ETF, with a bank transfer. Or, you can transfer your cash to the ETF online. However, I recommend keeping your cash at home in case you encounter any unexpected circumstances in regards to your portfolio.
You can also use your IRA. The process for setting
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