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Online share trading means buying or selling shares of companies listed on a stock exchange via an online platform. You require a demat and trading account for trading stocks, bonds, mutual funds, and other securities online. While online share trading is a reasonably straightforward process, garnering profits from the same can be tricky. This article will enlighten you on how to do share trading to maximise gains and minimise losses.
Common online trading mistakes made by novices
- Zero or minimal knowledge of share trading fundamentals
Before you embark on your stock trading journey, you must know basic terminologies like bid price, ask price, bid-ask spread, long position, shorting, price change, offer quantity, etc. Knowledge of metrics like Price-to-Earnings ratio, Price-to-Book ratio, earning per share, compounded annual growth rate, dividend yields, etc., helps you estimate expected returns on equity investments based on historical performances. Hence, share trading with no or minimal knowledge of the basics is a trading mistake to avoid.
- Selecting the wrong broker
Nowadays, many brokers offering similar services exist in the market. Hence, choosing the right broker may be a Herculean task. You may use broker evaluation criteria like service quality, brokerage fees, demat and trading account fees, customer ratings, backend support, online trading platform features, margin trading facility, etc. Assessing a prospective broker based on these essential parameters will prevent you from making the wrong choice.
- Too much emphasis on short-term trading
You require a short-term and a long-term focus to create wealth and meet your life’s financial goals. While short-term trading may earn you quick gains, the probability of losses is also high, especially if you are an amateur, as you may not be well-versed with trading strategies. Moreover, you may lose sight of your long-term financial objectives. Hence, adopting a mix of short-term and long-term ‘buy-and-hold’ trading strategies is imperative.
Intraday trading mistakes
Some of the common intraday trading mistakes committed by newbies are:
- Not placing a stop-loss order
- Exiting a position hurriedly before a stock reaches the target price
- Being overconfident, cynical, or brash while trading
- Engaging in panic-trading based on rumours or latest stock market updates without assessing the situation calmly
- Executing delivery trades of illiquid stocks
- Adopting herd mentality
- Being unaware of intraday trading strategies or engaging in leveraged trades using high margins
- Putting all your eggs in one basket
Lack of portfolio diversification is a common trading mistake committed by beginners. Putting all your money in a single stock or building a portfolio skewed towards a single type of investment should be avoided. A good mix of high-risk and stable investments based on your risk-return profile helps in curtailing losses and maximising profits.
Conclusion
A quick look at the common online trading mistakes emphasises the need for a structured investment plan. Assessing your risk tolerance, expected returns, and long-term and short-term goals will enable you to choose your investments wisely. Thus, you can avoid common mistakes in stock trading. You can also seek professionalhelp by consulting a financial advisor if needed.
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