Points to keep in Mind Before you start trading in shares?
Prerequisites to start trading in stocksAbhishek Chauhan
•Take Informed Decisions
Before investing in stocks a proper research should always be undertaken. But that is rarely done. Investment in the stock market should be done after getting the basic knowledge about it, in accordance with your financial goals. Investors generally select the stock by the name of a company or the industry they belong to. However, this is, not the right way of putting one's money into the stock market.
Take time to learn the basics about the stock market and the individual securities composing the market, before investing in stock market for the first time. Never step in, if you really don’t understand about the stock. Before investing in a company, you should know about its business. Especially while you’re just starting out, it’s important to only invest in businesses that are easy for you to understand.
•Stock market is not a money-making machine
Stock market is not a money-making machine, which can turn them into millionaires over a period of time. Well, it is true that a lot of investors have made profits through the stock market but there are also a lot of people who have lost their entire wealth, while some have been forced to sell their personal assets in order to cover the loss in the market. People make profit only because they’ve good market knowledge, made some really smart choices by adopting carefully thought of strategies, and are also much disciplined in their approach.
•Invest only your surplus funds
The biggest mistake made by a new investors is to invest money that they can’t actually afford to lose. It is risky to invest in the stock market, which means that you can potentially lose everything. Your own Risk tolerance should be decided considering your age, financial strength, retirement goal, etc, and accordingly should take the risk. If you want to take risk in the stock market, then only invest your surplus funds which you can afford to lose.
•Control your Emotions
Keep your emotion separate from any particular stock as many investors end losing money in the stock markets due to their inability to control emotions. Get rid of the fear and greed cycle.
•Avoid herd mentality
You should avoid the herd mentality that is influenced by the actions of your acquaintances, neighbors or relatives without evaluating the current information and underlying stocks. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But if you have not chosen the stock by careful analysis, this strategy is bound to backfire in the long run.
•Diversify, create a broad Portfolio
Create a well-diversified portfolio of stocks that can save you from losing money and help you reduce the risk if certain stocks do not perform well. Never put all your money in one stock. Also, over diversification should be avoided.
Lastly it’s important to monitor your investment and review it periodically as any important event happening in any part of the world does have an impact on our financial markets. Also, any financial event or news related to a particular stock or industry impacts that stock.