Few Common Mistakes People Do While Trading Online for the First Time

For a new investor, stock markets can be an alluring place. While trading for the first time, it might feel like legalised gambling, where people make and lose their fortunes. But the right approach is to first have a thorough understanding of the financial market. Even with the knowledge of stock market fundamentals, however, you can make mistakes as a first-time investor. Read on to know about these common mistakes:

Ignoring the Basics of Stock Market:

While trading online for the first time, you cannot afford to ignore the basics of stock markets. This means understanding the concepts like ‘Going Long’ ( first buying, then selling), ‘Going Short’ ( first selling then buying), bid price, ask price, bid quantity, offer quantity, and stock price changes. You must also understand how the following metrics are calculated before purchasing stocks:

  • Book value
  • Return on Equity
  • Earning yield
  • GP margin
  • Debt to Equity ratio
  • Interest cover ratio
  • Market capitalisation
  • Dividend yield
  • Price earning ratio
  • Margin of safety

Not Having a Proper Investment Plan:

While seasoned investors have a solid plan, first-time investors can often lose direction by unplanned investments. If you are trading online for the first time, you should have a personal investment plan, which includes the following:

  • Your overall goal and objectives, whether it is long-term, mid-term or short-term.
  • The amount of capital you are willing to invest.
  • Your risk profile; ascertaining the maximum amount you can afford to lose.
  • The capital to be invested in various equity investments, including shares, futures and derivatives.

Investing on the Basis of Speculation or Guesswork:

If you are trading online for the first time, then you should not invest on the basis of rumours or market speculation. You must do market research, gather the data about the existing trends and patterns, and then invest. Many stockbrokers provide ample technical analysis through a minute-to-minute analysis of the stock markets. You must study the updates and charts, and make informed decisions.

Wrong Risk Assessment:

  • Stock markets are subject to high market volatility. So while trading online for the first time, you should always try to strike a balance between unnecessary risk-taking vis-à-vis reasonable risks. Many first time investors also fail to know the margins they are willing to push while taking risks. Thus, understanding your risk-tolerance is of paramount importance.
  • Market experts suggest investing in stocks from established companies. Though even these stocks are subject to market risks, you can be sure that the stocks will eventually rise, or not fall beyond a certain price. You can also be sure of receiving dividend payments, while investing in stocks of reputed companies.

Not Diversifying the Investment Portfolio:

  • Investors trading online for the first time often fail to diversify their investments. Here you must remember that it is never a good idea to invest in stocks of a single company, or invest in only a single type of investment. A market crash, or a single negative market movement, can result in a huge financial loss if you fail to diversify your portfolio.
  • Ideally, your portfolio must comprise of stocks from different companies, along with investment in futures and derivatives. You can further diversify your portfolio by investing in Equity-linked Saving Schemes (ELSS) or Mutual Funds.

Not Understanding Market Movements:

First-time investors often make the mistake of selling out in a panic or holding on to a losing stock. Here, you must remember to consider whether a downward trend in the stock market is just temporary, or a long-term loss. A short-term attitude towards the market can result in a situation where you sell out your stocks in panic, without considering the fact that their prices would rise up again. Conversely, when market indicators suggest that the stock prices are headed towards permanent depreciation or a point from where they won’t pick again, you should sell the stocks, and cap your losses.

Failing to Choose the Right Brokering Platform:

There are a slew of stockbrokers who provide similar services. In the digital age, it has become easy to trade after opening a Demat Account and a Trading Account. Investors trading online for the first time often choose a brokerage platform which does not provide an all -in- one account along with cutting-edge stock and scheme recommendations.

Conclusion

Thus, while trading online for the first time, you should avoid making these fundamental mistakes. You should always remember to open an online Demat Account and a trading account with a trusted financial partner who can provide an all-in-one, hassle-free trading platform. You should look for unbeatable features like brokerage cashback, free AMC period for online Demat Accounts and zero online Demat Account opening fees. Alongside, a single Demat Account for investing in various options, you should also ensure that you are receiving daily and weekly customised market reports. For maximum profit booking, select a trusted partner that provides in-depth coverage of markets, companies and business with heat maps.

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