According to the 2023 Global Online Broker Industry Report, nearly 72% of mass-market brokerages (such as Robinhood and eToro) allow customers to open an account with a minimum capital of $10 to $100. Let’s take the US market as an illustration. Robinhood’s commission-free platform enables users to purchase about three shares of Tesla using $100 (as of December 2023 stock price at $330), while eToro’s copy trading mechanism enables users to invest $100 in strategy portfolios with a yearly rate of return of between 15% to 25%. But note the ratio of transaction costs: If the commission for one transaction is $1 (e.g., the fixed fee of Interactive Brokers), the rate of transaction costs for a principal of $100 amounts to 1%, which is much above the professional level of 0.05%-0.1%. Also, leverage tools need to be approached carefully – 1:30 leverage is given by the MetaTrader 4. $100 can be applied to leverage a $3,000 position, but in case the market changes by 2%, the account may be endangered of loss by 60%.
In terms of asset allocation, $100 would be more appropriate to diversify the investment across ETFs or split stocks. For instance, the market price of the present unit of Charles Schwab’s Schwab S&P 500 ETF (SPLG) is around $50 as of 2023. One can have a $100 portfolio using two ETFs and cash positions. Based on available data, it has been seen that those investors who, month after month between 2020 and 2023, invested $100 in the S&P 500 Index achieved a 38.7% total return (around 12.9% per annum) for a period of three years. But movements in exchange rates have to be considered: If trading in the euro against the US dollar through XM Broker, the spread is typically 0.6-1.2 points. For a $100 account, every transaction will incur an implicit cost of approximately 0.6%-1.2%. It must be added that statistics for the demo account of Futu Securities state that in the initial three months of trading at actual trading $100, 68% average loss probability falls to new traders mostly due to high-frequency trading-induced commission capital accumulation (4.2 times a day) and emotional trades.
Analyzing technical indicators states that the $100 account is more adequate to execute a low-volatility strategy. From TD Ameritrade’s backtested data, application of the RSI (14th day) oversold strategy on Apple stocks produced six trading signals between January and October 2023. In all cases, a 20% position ($20) was invested, which achieved a total return rate of 27%. But watch out for platform fees: Some brokers also charge a maintenance fee of between $5 and $10 a month for accounts between $5,000 and below, which will immediately devour 5% to 10% of the account principal. Regulatorily, the FCA requires UK brokers to provide their clients with negative balance protection, which reduces the risk of margin calls on a $100 account. However, the US SEC margin rules do mandate that at least $25,000 is required in day trader accounts to restrict the active trading frequency in small accounts.
The compounding effect after a long time will come with surprises. Depositing another $100 per month. With a return of 8% compounded annually, the account balance will be $18,294 (total principal will be $12,100) after 10 years. This approach has been validated on the automated investment portfolio of M1 Finance. Its 2022 user data shows that the average rate of return on the 100-yuan regular investment account tracked for more than 12 months is 14.6 percentage points greater than the short-term account. However, management of liquidity is important: with Charles Schwab research, possessing 20% to 30% cash within an account may reduce the possibility of forced liquidation due to fast oscillations. For a $100 account, for instance, each trade should not exceed a position size of $70. Furthermore, tax effectiveness cannot be dismissed – the United States Internal Revenue Service levies a higher rate of short-term capital gains tax (up to 37%) on investors with more than 200 transactions throughout the year and an account balance of below $25,000, which can deplete the net gain of small accounts.
The key value of broker trade is the facilitation of increased accessibility. Deloitte’s 2023 Fintech report shows that the number of worldwide small investors (accounts with less than $500) increased by 217% since 2019, of which 83% had their first transactions on mobile brokerage platforms. Interactive Brokers’ PATS system shows that the average latency to place market orders for a $100 account is only 47 milliseconds, and the same level of trading speed as a million-dollar account. This democratization trend is altering the shape of the market – figures from the New York Stock Exchange show that in Q3 2023, retail investors accounted for 22.7% of the trading volume, an increase of 14 percentage points from 2018, with 35% of the orders being less than $500.”. In spite of this, the gap in investor education still exists: Only 29% of short-term traders correctly calculated the margin requirements of leveraged trading in one FINRA survey, showing the necessity of risk management tools (like stop-loss and take-profit orders) in broker trade.