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Let's say I had 1,000 dollars to start investing, just an example. TSLA is a little over 320 dollars right now as I type. So I decide to buy three shares, for whatever reason. I know have about 40 dollars left. Let's say I feel really good about risk management and want to buy a stock that's about 45 dollars. Can I do that? Do I just go into negative balance and pay it off with Are there certain ways? Certain brokers? If so, does TD Ameritrade let you?

What I'm asking is hard for me to put in words, so I'll add comments as I think I need them.

  • You can borrow to invest...nothing's stopping you, but your broker wont be the one to loan you the cash. – Crisfole Jul 18 '18 at 18:34
  • Why won't the broker lend money? – Bob Baerker Jul 18 '18 at 18:54
  • What you said makes sense based on what you think I said. What I'm really asking is, when you make a trade, does your account balance change when you first place an order, or only when you've placed it? I guess this is confusing for me since my broker doesn't change what it labels as account balance until I profit or loss.... I do understand margin though, and yes, making that 45 dollar trade WOULD be a bad idea! – Shadow Sniper Jul 19 '18 at 12:21
  • Cash available in your account changes when you execute a trade not when you submit the order. When the trade executes, the cost is debited from it for a buy and the credit is added to it (sale). Account value varies according to the value of the various positions in the account. – Bob Baerker Jul 19 '18 at 12:34
  • So if I submit two orders that I can afford in part, but no BOTH, will the one that executes later not execute and output an error? – Shadow Sniper Jul 20 '18 at 12:53
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Most brokers charge a commission so your purchase of 3 shares of TSLA @ $320 each will leave you with a bit less than $40 remaining from your $1,000.

Regarding your question, you cannot go into "negative balance" (U.S.) unless you have a margin account. In addition, the NYSE and the NASD require investors to deposit a minimum of $2,000 in cash or securities to open a margin account. Some brokers may require more.

Initial margin is 50% so with $2,000 you could buy up to $4,000 worth of stock. Be advised that you shouldn't go near margin until you have many years of experience in the financial markets and you have developed disciplined risk management. The financial markets have a knack for taking money from naive and inexperienced investors/traders.

  • Well I've been doing it for 3 years, if that counts – Shadow Sniper Jul 19 '18 at 12:21
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    @ShadowSniper "Well I've been doing it for 3 years, if that counts." I'm confused. You've been doing what exactly for 3 years, trading and/or investing? If you've been in the stock market for 3 years, it is only sensible that you do one AND ONLY one of these 2 things: 1) Ask the question that you asked 2) Claim confidently that you've "been doing it for 3 years" – ToniAz Jul 19 '18 at 12:27
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    Sorry, I don't follow. You asked about what brokers will allow you to trade on margin (go into "negative balance") and yet you have been doing it for 3 years? – Bob Baerker Jul 19 '18 at 12:28
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I know have about 40 dollars left. Let's say I feel really good about risk management and want to buy a stock that's about 45 dollars. Can I do that?

You absolutely should not do that. What you're talking about is "investing on margin." Generally, the way this would work is your broker would lend you half the money. Considering a 50% margin requirement, you pay $22.50 and your broker lends you $22.50, you pay interest on this $22.50 and if the stock falls below your margin maintenance level ($22.50 in this case) you will either have to contribute more to the account (known as a margin call) or risk the sale of some of your account assets in order put your account back in to alignment with the 50% cash requirement.

Put the remaining $40 in to TD's money market or some broad index fund with a low expense ratio that will take a $40 initial investment. Contribute to your account each month and when you have the cash sufficient to support another position, take that position in cash.

Do not play with investing on margin until you are comfortable with the movements of the market and have a sufficient cash position in the account to absorb the daily ebbs and flows of your investments.

As an aside, I am a big advocate of playing with real money not play money accounts. But you need to get used to your 3 shares of Tesla moving around every day before you start to really ratchet up the risk and borrow someone else's money to invest with; especially when the lender has the authority to unilaterally sell your positions as is the case with margin investing.

  • Great answer about margins, but I suspect the OP was simply asking if any broker would let them go "5$ overdrawn" until next month when they didn't have quite enough for that "last share" this month. – TripeHound Jul 19 '18 at 8:21
  • "Play money accounts" are pretty much worthless. A good simulator ties directly to the market with no slippage or make believe trades. IOW, you must trade at the bid or ask and you only get a fill for the number of shares that actually trade and at that price. Since it’s virtual money, it’s nothing like the reality of wagering your hard earned money. But it is a stepping stone toward familiarizing yourself with order creation, order placement as well as implementing and testing various trading strategies. It’s also quite useful for learning the ins and outs of a trading platform. – Bob Baerker Jul 19 '18 at 12:58
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So to answer your question, you can't buy fractional shares when buying stock. So with $1000 as your max budget you could only buy two shares of TSLA.

To answer what you didn't ask:

  1. The price per share isn't really that important when picking most stocks. If you decide the company is a buy, you're looking for % growth in the long run.
  2. Be aware of commissions. That ~$5.95 per trade adds up, especially when you are investing a relatively small amount.
  3. Common advice here is to avoid buying a single stock. In the long run, you are likely better off buying a low-cost Index fund and investing regularly. For example, while most of my investments are in index funds, I can't help but dabble in the market and I also buy individual stocks. While I've hit some home runs, overall my index funds have done 2% better over decades of investing. I'd have a lot more money if I skipped on TSLA and all my other picks and just stayed with a market index.

(I'm glossing over some details here. There are times when it is possible to acquire fractional shares, but I'm sticking to the context of your question.)

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As a low-income investor myself, I would say save that $40 until you can make a larger purchase later.

If you do your own trading through a broker online, say at $7 per trade, if you only have $40 and spend $7 on fees, you would only have $33 to actually buy shares. If the trade that you made for TSLA pays dividends, you can accept the dividends, and combine that with your $40, or add more money on your own later until you have enough to make a significant purchase.

IF you absolutely need/want to spend the $40, you could look for cheaper stocks.

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