If you are new to investing in the stock market, you may be overwhelmed by the sheer volume of information and literature available online and offline intended to educate the new investor. For a lot of new investors navigating the stock market through a stockbroking firm that assigns you a dedicated relationship manager and guides you through the processes and formalities that precede actual investing, is the preferred route. For younger, millennial investors stock trading online is both easy and exciting. Depending on your age, risk appetite, and capital there are many different approaches you can take to investing. But there are few things you must know to absolutely avoid doing when investing, especially if you’re investing online through a trading mobile or desktop application or through other 3rd party platforms. Here is a short checklist you can refer to when stock trading.
Know the difference between day trading and long term investments
As a new investor, the allure of making big money fast can be exciting. It is why a lot of people turn to invest in the stock market. Rather than looking at it as a way of saving your money efficiently to beat inflation and grow slowly and consistently, it is seen as a platform to gamble and make windfall gains.
Anyone that has made money from the stock market has done so but by being consistent, strategic, and investing in companies with strong fundamentals. Investors that participate in day trading also known as intraday trading, may make huge profits in the short term but the downside exposes them to huge risks as well. Professional intraday traders are experts at trading. They possess an in-depth understanding of market trends and stock movements. As a novice in the stock market or someone who doesn’t deal with the financial markets for a living, it is potentially better to stay invested in stocks and mutual funds for at least 5 to 7 years.
Trading online is easy. So easy in fact that it may seem easy to keep entering and exiting positions when markets are volatile. It is also easy to get carried away by market intelligence loosely shared by family and friends and buy or sell shares purely on instinct and hearsay. When in doubt, stay invested. There is a tendency to panic and sell shares when prices are falling to cut losses and start investing when you see others around you making money due to rising prices. As an investor, you need to be objective about the position you want to take with respect to trading stocks.
If you have invested in a company with strong fundamentals, a periodic rise and fall in share prices shouldn’t be of any concern to you. In the long term, price fluctuations negate themselves to give you steady growth as long as the company continues to perform well financially.
Research while trading in the stock market may include speaking to stockbrokers, family members that invest, friends, coworkers, etc. to get a jumpstart on what to invest in and how much to invest. But this is only secondary research. You need to conduct your own stock analysis, before investing. There are many ways to study a stock, historical performance being a sure indicator of how the stock will perform in the future. Studying the industry you want to invest in is another good avenue for research. How the companies in a particular sector or industry perform gives you a benchmark on what you should expect from the stocks you invest in.
For new investors, doing what everyone else is doing can feel reassuring. Each person’s finances and financial goals though are different. The ability to undertake risk varies from person to person as well. Investing in options or commodities because everyone else is doing it is not a good enough reason to do it. The gains may seem enticing. Conducting your own research is paramount to creating a diversified investment portfolio suited to your needs.
Investing on borrowed capital
Borrowing money from your stockbroker to invest should be avoided at all costs. In the short term, the stock market can be extremely volatile. Money borrowed to invest with your existing stock holdings as collateral could leave you with nothing if things don’t go as planned. To make use of lucrative investment opportunities that present themselves, keep a fund available at hand to strike when the iron is hot.
Find the right broker
Finding the right broker for yourself is extremely important. Pay attention to commissions charged on transactions, costs associated with opening a Demat account. Regularly look at statements shared by your broker to keep a pulse on the performance of your stocks. Small brokerage costs can add up over time. Paying attention to the tax liabilities on profits earned through stocks essential to not eroding the value these investments generate. Having a good broker to guide and advise you is critical.
Set your financial goals
Investing without a financial goal is a futile exercise. Financial goals help you arrive at how much you want to invest and how long you want to stay invested. They empower you to make financial decisions that will benefit you even if they don’t make sense to anyone else. It will also enable you to track your growth in the stock market against your own goals versus what everyone else out there is doing. Committing to financial goals is what makes investing in the stock market worthwhile.
It is impossible to make only smart decisions when investing. You will trip up along the way. You will also be tempted to over-correct mistakes you make by throwing good money after bad. The more you plan before investing, the less likely you are to commit huge blunders that lead to losses. Staying calm, focused on your financial goals, and having a plan you are confident about is a sure shot way to keep your investments in the stock market secure.