Seven ways of managing money in securities trading
Traders cannot control market instability; however, they can unquestionably deal with their cash by embracing successful money management techniques without which there is a probability of losing part or entire investment.
Mar 17, 2018 11:03 IST India Infoline News Service
In a period of innovation, learning about the mechanisms of the capital market is mostly free and can be done in the comfort of your home. The thumb rule for successful trading is to avoid significant losses.
Trading is a game of precision, and you have to always be at the top of your game. Traders cannot control market instability; however, they can unquestionably deal with their cash by embracing successful money management techniques, without which, there is always a probability of losing part or entire investment.
Risk management begins with distinguishing the risks involved and taking preventive measures to limit their impact.
Here are seven ways to manage money while trading in securities:
- Approximately 60% of individual stock price movement is credited to market sentiment. Share prices rise and fall with the market. Subsequently, being on the right side of the pattern is very much required.
- Owning stocks of individual companies can offer better returns at a time. It, likewise, exposes one to a higher risk that can influence the business. Consequently, dividing monetary resources across the industry or different resource classes is a good and time-tested approach to minimize risk.
- Disciplined trading not only helps you manage money but also guarantees fair profits. Enjoying overtrading may lead to losing profit along as well as the initial capital.
- One should preferably invest surplus money which he/she might not require until the distant future; this surplus can help in case there is an emergency or a financial crisis.
- Always trade with various strategies. It is important to have an understanding of the market's basic and technical realities. It is also useful to take expert advice and evaluate tips.
- The market can turn out to be highly volatile at times, which tends to shake investor confidence. Therefore, stick to basic-level, active stocks and stay invested for a longer period to claim higher returns on the invested cash.
- If you own stocks that have expanded significantly in value, selling some of them is a decent approach to safeguard partial profits. You will still have the potential for further upside on the remaining stock. During times of higher-than-normal instability, take a portion of profits from a better positioning and leave those returns in cash. This way, you can help secure those profits and lower your overall risk.
Recent market moves — both upwards and downwards — can be disruptive for an investor. From one perspective, you know there are several opportunities out there which you can take advantage of. Then again, the overall market can be punishing if your strategy is wrong or poorly planned. In any case, if you utilize these seven tips, you can be in a decent position to keep your trading on track.
You can always use trading apps such as 5paisa to get more knowledge about investing in securities.
