Common Mistakes People Make While Trading Online for the First Time

Last Updated: 16 Oct 2024

For a new investor, stock markets can be intimidating. 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.The common mistakes people make are:

Ignoring the Basics of Stock Market:

You cannot ignore the basics of stock markers while trading online for the first time. Understanding 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 are very important. 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:

First-time investors often lose direction by making unplanned investments. Having a personal investment plan is very important, which includes:

• Overall goals and objectives, whether it is long-term, mid-term or short-term.
• Amount of capital you are willing to invest
• Risk profile; ascertaining the maximum amount you can afford to lose.
• Capital 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 based on market speculation. Doing market research and gathering data about the existing trends is important to start investing. Many stockbrokers provide ample technical analysis through a minute-to-minute analysis of the stock markets and make informed decisions.

Wrong Risk Assessment:

• While trading online for the first time, you should always try to strike a balance between unnecessary risk-taking and reasonable risks. Market experts suggest investing in stocks from established companies. Though these stocks are subject to market risks, you can be sure that the stocks will eventually rise, or not fall beyond a certain price.

Not Diversifying the Investment Portfolio:

• Investors trading online for the first time often fail to diversify their investments. 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 stocks from different companies, along with investment in futures and derivatives, 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. Considering whether a downward trend in the stock market is just temporary, or a long-term loss is very important. A short-term attitude towards the market can result in a situation where you sell out your stocks in a panic because their prices would rise again or vice versa.

Failing to Choose the Right Brokering Platform:

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 that 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, opening an online Demat Account and a trading account with a trusted financial partner is important who can provide an all-in-one, hassle-free trading platform. You should also look for unbeatable features like brokerage cashback, free AMC period for online Demat Accounts and zero online Demat Account opening fees.