Stock trading is an age-old method to earn some extra money, and if invested wisely, stocks can earn you a good fortune. The possibilities in the stock market are seamless, and people get the sweet taste of success overnight if luck’s on their side. Although, most people think that stock trading and securities investments are forms of legal gambling because of the huge risk factor involved.
However, just like any other business, long-term stock trading requires grit, patience, and inquisitiveness. People who go headfirst into the market intending to double or triple their wealth overnight end up losing loads of money. Therefore, organize your finances first and calculate the effective investment amount to save yourself from devastating losses. Also, do proper market research and analyze the performance of the top 500 companies on the index. These companies dictate the market movement pattern, which will help you anticipate the probable rise or fall.
A few years ago, stock trading required the active participation of the brokers because live information wasn’t easily available and accessible. People who didn’t live in the financial capital had to read the newspapers to study the movement, which caused 24-hour delays and sometimes resulted in exorbitant losses.
However, the stock market has marked its presence on digital platforms now, and all the charts and trading volumes available are updated to the minute. This has allowed for a wider reach, and the commoner can easily trade stocks now through the comfort of their phones with minimum brokerage charge. If you are a newbie looking to start stock trading, read this article to avoid six common mistakes and minimize your risk.
|Table of Contents|
Frequent buying and selling
Several stock market apps offer minimal brokerage fees and premium amounts. But, these charges are applicable on each transaction, so if you trade in huge volumes, you will end up paying a fortune in fees and taxes. Government charges 2-3% tax on the transactions, so it is of no use to frequently buy and sell.
Only institutional investors and seasoned traders who have huge capitals can afford short buying and selling. Hence, a great portion of your profit will go into the axillary costs, which will minimize return. Additionally, holding on to stocks for a long period can result in huge profits. Therefore, do not sell your stocks prematurely.
Know about your investment
If you are someone who has a different primary job and doesn’t want to indulge too much in the stock market and research analysis, close your eyes and put your savings in mutual funds. Companies that offer mutual funds services are institutional investors. These companies will combine their money with yours and put it into diversified portfolios. Mutual investment corporations are well-equipped and have a team of market researchers who read into top 10 companies and suggest ratio division accordingly. Mutual funds are also subject to market risk, but the risk factor is minimal, and your money will grow at a steady pace.
However, if you want to take things into your hand and invest in a blue-chip company, research the company thoroughly. Read about their last financial quarter performance, future goals, production volume, director competence, loan undertakings, and other securities to get an actual picture. Most importantly, you must know what the company does and how it plans to move forward. When you are solid with your research and thoroughly understand what you are getting into, only then proceed to buy the stocks.
When you put your money in a company, you are in for the profits and nothing else. Always act and invest like a seasoned businessman and do not develop unnecessary attachments with a corporation. Sometimes, when a company gives us initial successes, we tend to stick to it for a long time in all the thicks and thin. But, you are just an investor, and if any principle or working fundamentals that formed the basis of the company’s past success has changed, sell the stocks and move on.
Giving in to desperation
Successful market investors have projected that some stock gave them huge fortunes, and people accepted that without any questions. No stock grows overnight, and if you are in the market to multiply your money as soon as possible, you are in for a huge disappointment.
If you have done your research properly, back it and be patient with your investment. Give Your money some time to grow with the market. Buying and selling at short intervals will adversely affect the risk-reward ratio, and you may end up losing a huge chunk of the initial investment amount.
Waiting to break even
Waiting to break even is the intuitive response to a falling stock. Sometimes, when we invest in a promising stock, and it rises for a while, we wait till we can earn a huge return. However, when the market crashes and the stock starts to slide, we side with our research and hope that the stock will start to grow again at some point.
Don’t let your emotions get better of you
Enter into the market only when you can keep your emotions aside. Try to be strictly professional and think with your pocket at all times. Back your research, and don’t fail to put stop-loss pointers to minimize risk. There will be times when fear will get to your head, and you will miss out on profits. Similarly, greed is no good either, do what is best for you and trade in a safe bracket.
Stock trading is all about managing finances, market research, and keeping your cool at all times. Several stock trading apps now offer fake/virtual money to allow moot investments so you can get the hang of the market. These apps also give regular updates in the corporate world and notify you about upcoming IPOs. Additionally, you can read economic news and take out past data on these apps to do effective research. Lastly, never put all your eggs in one basket and ensure to diversify your portfolio.