by Joseph Nicholson

Created on: January 06, 2009

There's two main ways to turn a little money into a lot of money fairly quickly, but they're not without risk and they're not effortless. Before putting a single dollar into an investment, a trader should spend time working with simulators to get a feel for the market, and should spend a significant amount of time learning as much as possible. Obviously, books and websites can be great resources, as can television shows and friends or family members. Novice traders should be looking to learn market vocabulary, understand the market and economic data calendar, gain a working knowledge of trading strategies, and at least a basic knowledge of business and finance fundamentals. Investing and trading is not gambling, and only with the right information can the odds be moved in a positive favor.

But once a trader has the essential knowledge, the two fastest ways to put small amounts of money to work are through margin accounts and options. By law, investors can borrow up to half the purchase price of securities through a margin account, doubling their purchasing power. Individual brokers, however, may restrict or modify the terms through their margin agreements, and may have initial investment minimums. The margin agreement will also set forth a minimum maintenance level, and usually reserves the right of the broker to change this level at any time. If the investor's equity in purchased assets falls below the maintenance level, the broker is able to liquidate the account without notice. A "margin call" gives the account holder the opportunity to meet the maintenance requirements without intervention by the broker.

The other way an investor can get the most out of their money in the stock market is through options. Though options were traditionally used to help investors buy or sell stock, calls and puts can be used to place directional trades on a wide variety of stocks, ETFs, and futures. If the options are sold or bought to close before expiration, there is no need to purchase the underlying equity. With ETFs existing for most indexes, commodities and sectors of the economy, the opportunities for options plays are virtually endless.

Many strategies also exist for using options to hedge or collar positions, many of them quite advanced. A simple approach to start a small initial investment generating income is to use the covered call strategy. Here, the initial investment is used to purchase 100 shares of a stock. Against this stock position, a call contract at a higher strike price can be sold in the open market. The investor immediately pockets this amount and never has to part with the stock unless it rallies above the strike price of the call option. If the stock is called and sold, the investor pockets the sale proceeds as well, and can repeat the process. If the stock price falls, the investor still keeps the proceeds of the call write and can sell again after it expires, never taking the loss on the stock and ultimately making back the difference. In this way, a small amount of money can start generating regular income like a bond.

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