Published : April 30, 2021
Share trading online, at first instance, seems to be a hassle-free and stress-free process. However, first-time investors soon get to realize that this is nothing but a myth and that investing is a process that takes time, patience, and effort.
Though share trading online appears to be lucrative to many, the reality defines it as a tricky game wherein if the investor is not careful, he is bound to make grave investment mistakes and lose all his money.
It is easy for the newcomers in the field to jump straight into speculative activities. However, what is advisable to all the beginners opting for share trading online is to avoid some common yet costly mistakes. Avoiding these mistakes as a share market beginner will help you guard yourself against losing your hard-earned money.
As a beginner trader or investor, you cannot ignore the importance of learning the share trading online trading basics. Understanding the basics means understanding some of the basic concepts related to the share market like ‘going short’, ‘going long’, bid price, bid quantity, stock price change, offer quantity, and others. You also need to have an in-depth understanding of some of the metrics calculated before purchasing a stock like the margin of safety, debt to equity ratio, book value, return on equity, dividend yield, price earning ratio, etc.
While seasoned investors always enter the market with a detailed plan, first-time investors usually enter the market without a solid share trading online plan. Soon they lose direction and invest in risky stocks losing their money eventually. First-time investors need to keep in mind stock trading is not a guessing game of blindly investing in stocks that appear to perform well. Thus, you should always have a strong investment plan that includes your investment goals and objectives. It should mention the amount of capital you are willing to invest, the risk profile you can bear, and the portion of capital to be invested in various equity investments.
The idea of getting rich by share trading online in a short time limits your focus to the near future itself. It prevents you from thinking about long-term investments thereby affecting your investment decisions. This can heavily damage your long-term financial future. You might make huge profits in the short run but first-time investors usually end up making rash and uninformed decisions to end up in losses. This is also why having an investment plan is essential. It helps you in taking a call on your short-term and long-term investments. You should always choose an investment strategy that motivates you for long-term investments rather than focusing on short-term gains.
When talking about share trading online, portfolio diversification is the key. We have often heard ace traders saying ‘don’t put all your eggs in the same basket’ highlighting the importance of portfolio diversification. This is where first-time traders fail. They fail to diversify their investment portfolio. They forget the fact that investing all your capital in stocks of a single company is not the right choice one makes. Failing to diversify your portfolio can cost you significantly in the long run. Diversification helps in balancing risky investments in your portfolio against stable investments. The best way to avoid this mistake is gradually building your investment portfolio by adding both long-term and short-term investments.
The market today is flooded with numerous individuals and firms offering stockbroking services. With so many players operating in the market, it becomes difficult for a beginner trader to choose the right broking firm. All the brokers are providing similar services that make the task more challenging. In the digital world, it has become easier for traders to open a Demat and Trading Account but choosing the right broker for the same goes a long way. You can easily open an online stock trading account with a CDSL or NSDL broker. Choose a broker offering low brokerage, free calling support, high margin facility, trained dealers and advisors, and advanced trading platforms.
When indulging in share trading online for the first time you need to avoid these common mistakes. Always open a Demat Account with a broker that has a strong customer support system and smooth and fast trading platforms. Seek expert assistance before putting your hard-earned money in any financial instrument to prevent yourself from losses.
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