Why is research important in share trading?

Stock markets are considered to be volatile and subject to national and global influence. Research is an essential aspect of the stock trading process.

May 26, 2018 6:47 IST | India Infoline News Service
Analytic Research
As the saying goes “look before you leap”, it is always to prudent to conduct thorough research before arriving at any decision. When talking about financial investments, it is advised to perform comprehensive research, and more so in the case of stock trading.

Stock trading is a complicated process where decisions require intensive research and cannot be taken in haste. Typically, stock markets are considered to be volatile and subject to national and global influence. Research is an essential aspect of the stock trading process.

Why do you need research?
A carefree investing style does not guarantee a profitable return when trading in stocks. Research is essential to answer the following questions.
  1. Portfolio of the company
Before taking the plunge, one has to gather the basic information of the company, like its records, operating structure, history of the company’s management, and its performance in the unpredictable market, and so on. Most of the information will be available on the company’s website or its corresponding sites.
  1. The market value of the company’s stock
Before investing in a company’s stocks, an investor has to pay attention to its market value. Knowing about the company’s success rate through research helps investors know about the viability of its future earnings and the requisite price and stock ratios.
  1. Competition
Not every company will be a single player in its segment; research helps investors know of the company’s competitors, their market value, their growth rate, the age of the enterprise, and how the company’s stock fares against the competition.
  1. The leaderboard
No investor will have direct access to the management, but the company’s website will have all the details. Research can help investors know who is in the upper echelons of the administration and their experience and performance.
  1. History of the company
Research assists traders to know about the company’s history and its performance in the market. Quarterly and the annual reports of the company will showcase its earnings, market value, and its current net worth.
  1. Growth graph
When investing in a company, it is essential to know about its growth prospects. If the trader is going to invest in a newly formed company, they should be confident that the company has the chances to hold a significant place in the market share and has the prospects to maintain the rate of growth.
  1. Financial stability
Every investor or trader has to know the information related to the balance sheet of the company. They are to be aware of the debts and the assets of the company and be able to answer the following questions:
·         Is the company debt-ridden?
·         Does the company have additional sources of funding?
·         Is debt-equity ratio favorable, and so on.

These are some of the questions a stock trader needs to answer before he/she starts trading; research is the only tool that will help them gain these answers.

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