Trading
Basics
Basics
This article is designed to
introduce beginners to the attractive world of trading. Trading can be a very
exciting and useful endeavor and the main attraction for many people. You can
do it from almost anywhere. The main reason why people trade is to make money,
in simple terms, we buy a financial product and then sell it later for a higher
price. The product can be stock of a company, a futures contract or even a
foreign currency. A lot of people fail to make money, so make sure you understand
about why traders fail.
introduce beginners to the attractive world of trading. Trading can be a very
exciting and useful endeavor and the main attraction for many people. You can
do it from almost anywhere. The main reason why people trade is to make money,
in simple terms, we buy a financial product and then sell it later for a higher
price. The product can be stock of a company, a futures contract or even a
foreign currency. A lot of people fail to make money, so make sure you understand
about why traders fail.
A share makes the holder a
partial owner of the company and different types of shares have different
rights coupled with them. If you are able to sell off your share at a price
higher than your buying price, you make a profit but you also run the risk of
incurring a loss if the share price falls. The business you invested in makes
profit and they provide you part of it as dividend. In the share market you are
an unidentified player and many have made a reasonable profit. There is no
unique principle to ensure consistent gain but before you get into this market
you should know the basics of stock trading.
partial owner of the company and different types of shares have different
rights coupled with them. If you are able to sell off your share at a price
higher than your buying price, you make a profit but you also run the risk of
incurring a loss if the share price falls. The business you invested in makes
profit and they provide you part of it as dividend. In the share market you are
an unidentified player and many have made a reasonable profit. There is no
unique principle to ensure consistent gain but before you get into this market
you should know the basics of stock trading.
What does
Stocks Trading mean?
Stocks Trading mean?
Stock trading came into
action with the arrival of stock markets and these markets came into existence
when companies decided to raise money with the help of selling their stocks.
Every day lots of people get involved into stock trading and many people are
planning to trade. Stock trading as well as day trading and other types of
financial activities can seem very complex and even confusing but it’s not
actually so. Before you start trading it is essential to know its benefits and
drawbacks.
action with the arrival of stock markets and these markets came into existence
when companies decided to raise money with the help of selling their stocks.
Every day lots of people get involved into stock trading and many people are
planning to trade. Stock trading as well as day trading and other types of
financial activities can seem very complex and even confusing but it’s not
actually so. Before you start trading it is essential to know its benefits and
drawbacks.
Buying and selling of stocks
is referred as stock trading in the financial market. You have to approach a
broker in order to trade. You can trade either electronically or on the
exchange floor. Exchange floor scene must be familiar to you. Here your broker
arranges for your shares to be ordered. The floor clerk locates the floor
trader from whom the shares can be bought. Once the price is agreed upon, the
deal is finalized. In online trading your broker will connect to the exchange
network and search for a buyer or seller according to your order.
is referred as stock trading in the financial market. You have to approach a
broker in order to trade. You can trade either electronically or on the
exchange floor. Exchange floor scene must be familiar to you. Here your broker
arranges for your shares to be ordered. The floor clerk locates the floor
trader from whom the shares can be bought. Once the price is agreed upon, the
deal is finalized. In online trading your broker will connect to the exchange
network and search for a buyer or seller according to your order.
How Stock
Trading Works?
Trading Works?
Trade means to buy and sell
in the terminology of the financial markets. How a system that can accommodate
one billion shares trading in a single day works is a mystery to most people.
No doubt, our financial markets are marvels of technological efficiency. They
will handle your order for 100 shares of “BHEL” with the same care and
documentation as the order of 100,000 shares from another person.
in the terminology of the financial markets. How a system that can accommodate
one billion shares trading in a single day works is a mystery to most people.
No doubt, our financial markets are marvels of technological efficiency. They
will handle your order for 100 shares of “BHEL” with the same care and
documentation as the order of 100,000 shares from another person.
To become a successful
Trader you don’t need to know all of the technical details of buying and
selling stocks; however it is important to have a basic understanding of how
the markets work.
Trader you don’t need to know all of the technical details of buying and
selling stocks; however it is important to have a basic understanding of how
the markets work.
Two Basic
Methods of Trading
Methods of Trading
There are two basic ways in
which trading can be done they are:
which trading can be done they are:
· Exchange floor Trading
· Electronic Trading
Exchange
floor Trading
floor Trading
Trading on the floor of BSE
is the image most people have in their mind. Thanks to television and the
movies of how the market works. When the market is open, you see hundreds of
people rushing about shouting and gesturing to one another, talking on phones,
watching monitors, and entering data into terminals. In Exchange floor trading
traders will directly go to the market and trade with the help of a human
broker.
is the image most people have in their mind. Thanks to television and the
movies of how the market works. When the market is open, you see hundreds of
people rushing about shouting and gesturing to one another, talking on phones,
watching monitors, and entering data into terminals. In Exchange floor trading
traders will directly go to the market and trade with the help of a human
broker.
Electronic
Trading
Trading
The electronic markets use
enormous computer networks to match buyers and sellers, rather than human
brokers. While this system lacks the romantic and exciting images of the BSE
floor, it is efficient and fast. Many large institutional traders, such as
pension funds, mutual funds, and so forth, prefer this method of trading.
enormous computer networks to match buyers and sellers, rather than human
brokers. While this system lacks the romantic and exciting images of the BSE
floor, it is efficient and fast. Many large institutional traders, such as
pension funds, mutual funds, and so forth, prefer this method of trading.
Advantages
of Trading
of Trading
· Self employed – You can be your own boss
· Geographical freedom – You can trade from any corner of the world
· Minimal capital – You can start Trading with relatively small capital
· Unlimited potential for profit – Possibility to earn profit is very high
· Flexibility with time – You can choose when you trade and when you don’t
· Almost anyone can do it – If you are 18 you can open a trading account and
begin
begin
Disadvantages
of Trading
of Trading
· No guaranteed success – There is no guaranteed returns
· Can be stressful and emotional – when you are Trading with your own money, this is
almost expected
almost expected
· Lonely existence – trading can be a very lonely profession
Trading vs.
Investing
Investing
Generally, investing
involves buying shares/stock for long term capital growth. Most people, even
those who have never purchased shares before, are familiar with this
traditional approach to the market. For many years a ‘buy and hold’ approach
has been the thumb rule for many investors in the stock market. After
recognizing a potential solid large company, shares would be purchased and
locked away in the shelf. The ownership was similar to a marriage in that it
was undertaken for ‘better or worse’. Through good and bad times, an investor
would be secure in the knowledge that the company would pay periodic dividends
and that over many years, would return steady capital growth.
involves buying shares/stock for long term capital growth. Most people, even
those who have never purchased shares before, are familiar with this
traditional approach to the market. For many years a ‘buy and hold’ approach
has been the thumb rule for many investors in the stock market. After
recognizing a potential solid large company, shares would be purchased and
locked away in the shelf. The ownership was similar to a marriage in that it
was undertaken for ‘better or worse’. Through good and bad times, an investor
would be secure in the knowledge that the company would pay periodic dividends
and that over many years, would return steady capital growth.
Trading on the other hand,
involves buying and selling more regularly in search of small and consistent
financial gains. People have been trading for many years and those who are
successful generally enjoy all of the advantages. Trading has a greater
potential for reward than investing but with that extra potential for reward is
greater risk. Those who trade well have been well educated and prepared. It is
very are that somebody start trading and make money from day one. Often you
will hear the saying ‘Only Educated Traders Survive’. It means if you want to
be a successful trader you should be well aware of the market and stocks.
IndianMoney.com will support you in being an expert in this area.
involves buying and selling more regularly in search of small and consistent
financial gains. People have been trading for many years and those who are
successful generally enjoy all of the advantages. Trading has a greater
potential for reward than investing but with that extra potential for reward is
greater risk. Those who trade well have been well educated and prepared. It is
very are that somebody start trading and make money from day one. Often you
will hear the saying ‘Only Educated Traders Survive’. It means if you want to
be a successful trader you should be well aware of the market and stocks.
IndianMoney.com will support you in being an expert in this area.
Questions
to be answered before deciding to buy a Stock
to be answered before deciding to buy a Stock
Following are the questions
to be answered before deciding on which stock to buy.
to be answered before deciding on which stock to buy.
1. Do you know the company well enough?
2. What is the company’s reputation in the market?
3. Have you gone through their annual report?
4. Do you have the confidence to invest in this company?
5. Is some negative news about the company circulating?
6. How are analysts predicting the future?
7. How is the management of the company?
8. What are their growth prospects?
9. Am I aware of the insider activity?
10. Is it an internationally renowned company?
11. How is their marketing strategy?
12. Have there been any changes in the management recently?
13. How consistent has been their performance?
14. Has there been a sudden shift in their production?
Whenever you invest you
should be aware of your limits and remember not to exceed them. Share market
involves lot of risk; risk taking could either lead to fortunate gains or to
huge loss it can lead you to bankruptcy also. Concentrate on the following
factors before investing.
should be aware of your limits and remember not to exceed them. Share market
involves lot of risk; risk taking could either lead to fortunate gains or to
huge loss it can lead you to bankruptcy also. Concentrate on the following
factors before investing.
· You should avoid investing money more
than you can actually afford.
than you can actually afford.
· Know about your investment well and do
not blindly depend upon your broker.
not blindly depend upon your broker.
· Follow regular stock market quotes to
keep yourself abreast of the market swings.
keep yourself abreast of the market swings.
The share offers you an
earning power, gives you partial ownership of a company and the freedom to buy
or sell at any time. But if you are a beginner in stock trading you need to
play safe and equip yourself with a lot of information. IndianMoney.com will provide all such information for you. Unless
you are an experienced player you should invest only after surveying all the
substitutes and never go beyond your risk tolerance.
earning power, gives you partial ownership of a company and the freedom to buy
or sell at any time. But if you are a beginner in stock trading you need to
play safe and equip yourself with a lot of information. IndianMoney.com will provide all such information for you. Unless
you are an experienced player you should invest only after surveying all the
substitutes and never go beyond your risk tolerance.
What Is
Margin Trading?
Margin Trading?
There are day traders that
sometimes borrow money to practice their trade which is known as margin
trading. There is no cost to day trader for the margin benefit since margin
interests are typically only charged on overnight balances. It can be either
extremely profitable or extremely unprofitable because of the nature of
financial leverage and the rapid returns that are possible. High risk profile
traders can generate either huge percentage of returns or huge percentage of
losses in their cash. Thus day traders are sometimes portrayed as ‘gamblers’ by
other investors because of the high profits or losses born by them.
sometimes borrow money to practice their trade which is known as margin
trading. There is no cost to day trader for the margin benefit since margin
interests are typically only charged on overnight balances. It can be either
extremely profitable or extremely unprofitable because of the nature of
financial leverage and the rapid returns that are possible. High risk profile
traders can generate either huge percentage of returns or huge percentage of
losses in their cash. Thus day traders are sometimes portrayed as ‘gamblers’ by
other investors because of the high profits or losses born by them.
Day Trading
Strategies
Strategies
· Prepare for ups and downs of the market
· Avoid worthless rumors
To some, stock market day
trading is a good way to earn money with a bit of gambling. But you need to
have some idea about day trading strategies so that you get good profits out of
it. However once you get into day trading, then you have to devote your whole
life into the stock market.
trading is a good way to earn money with a bit of gambling. But you need to
have some idea about day trading strategies so that you get good profits out of
it. However once you get into day trading, then you have to devote your whole
life into the stock market.
Prepare for
ups and downs of the market
ups and downs of the market
When you invest money in the
Indian stock market, you need to be fully prepared for ups and downs in the
market. The value of the stock may rise or fall down in a single day. So each
trader makes his or her own strategy in order to earn maximum results. There
are traders who do their trading from their computers but this does not mean
that trading can be done only through the computers. There are some traders who
make the use of their phones. Whichever method you utilize, but the important
thing which you have to do is to make a good research. You should be able to
study the whole market very carefully so that you do not lose any cash
investing in the stock market.
Indian stock market, you need to be fully prepared for ups and downs in the
market. The value of the stock may rise or fall down in a single day. So each
trader makes his or her own strategy in order to earn maximum results. There
are traders who do their trading from their computers but this does not mean
that trading can be done only through the computers. There are some traders who
make the use of their phones. Whichever method you utilize, but the important
thing which you have to do is to make a good research. You should be able to
study the whole market very carefully so that you do not lose any cash
investing in the stock market.
Avoid
worthless rumors
worthless rumors
Apart from studying the
market about NSE, BSE, etc, you should also take some precautionary measures.
You must always avoid worthless rumors about the companies by people who do not
know much about them. This people just make you confused. So, you need to avoid
this type of people. It is always better to buy stocks when they are available
in low price and then sell them at a higher price in the market. There is a
limit on the gains from a single share in the stock market day trading. So, you
should always try to buy and change stocks in regular intervals.
market about NSE, BSE, etc, you should also take some precautionary measures.
You must always avoid worthless rumors about the companies by people who do not
know much about them. This people just make you confused. So, you need to avoid
this type of people. It is always better to buy stocks when they are available
in low price and then sell them at a higher price in the market. There is a
limit on the gains from a single share in the stock market day trading. So, you
should always try to buy and change stocks in regular intervals.
Day Trading
Techniques for Individuals
Techniques for Individuals
Individual day trader should
keep the following things in mind to succeed in day trading
keep the following things in mind to succeed in day trading
1. I will Trade small.
2. I will not Trade without stop loss.
3. I will win and walk out.
4. I will lose less and walk out. Some days are bad.
5. I will not get unduly swapped by the market noise.
Tips to
help you in being a good Intraday Trader
help you in being a good Intraday Trader
Following tips will help you
to become a successful Intraday Trader.
to become a successful Intraday Trader.
1. Start with a realistic goal in mind.
2. Never make the mistake of believing that you have become
the master.
the master.
3. Draw up a trading plan.
4. Make a commitment
5. Take a break
6. Take Professional Help
7. Long term strategy
1.
Start with a realistic
goal in mind.
Start with a realistic
goal in mind.
First you have to make a
decision whether you want to become a trader or seek an employment. Always keep
a realistic goal in your mind about what you want to achieve from the stock
market. That will help you to achieve the goals.
decision whether you want to become a trader or seek an employment. Always keep
a realistic goal in your mind about what you want to achieve from the stock
market. That will help you to achieve the goals.
2.
Never make the mistake
of believing that you have become the master.
Never make the mistake
of believing that you have become the master.
No one is perfect in stock
market, learning never ends here. One should not feel he/she is an expert if
they make money in 5-6 trades without any loss. One should keep himself open
for new learning and appoint consultants for him.
market, learning never ends here. One should not feel he/she is an expert if
they make money in 5-6 trades without any loss. One should keep himself open
for new learning and appoint consultants for him.
3.
Prepare a trading plan.
Prepare a trading plan.
Prepare a trading plan, with
historical data and then stick to it. Don’t keep fine tuning the plan, it means
never change plan. Start with the smallest amount of capital that you can
effectively trade with. Initially start with a small amount and carefully enter
the stock market.
historical data and then stick to it. Don’t keep fine tuning the plan, it means
never change plan. Start with the smallest amount of capital that you can
effectively trade with. Initially start with a small amount and carefully enter
the stock market.
4.
Make a commitment
Make a commitment
Don’t get overexcited after
a few successes in stock market and start increasing your capital, that is a
sure sign that you are not in control; the market is controlling you which mean
you are on the path of getting trapped in the stock market. IndianMoney.com suggests you to monitor your performance of winning
or losing on a weekly basis, Do review each trade and assess the performance.
a few successes in stock market and start increasing your capital, that is a
sure sign that you are not in control; the market is controlling you which mean
you are on the path of getting trapped in the stock market. IndianMoney.com suggests you to monitor your performance of winning
or losing on a weekly basis, Do review each trade and assess the performance.
5.
Take a break
Take a break
No matter you are gaining or
losing money in stock market. You should take a break after fix intervals let’s
say after 4 months, pause for a 3-4 days. Again evaluate your performance and
identify any gaps in your knowledge that needs additional works.
losing money in stock market. You should take a break after fix intervals let’s
say after 4 months, pause for a 3-4 days. Again evaluate your performance and
identify any gaps in your knowledge that needs additional works.
6.
Take Professional Help
Take Professional Help
If you know there is a
problem in your trading plan, don’t hesitate to consult a financial analyst.
Find an experienced and performance oriented professional who is providing tips
to their clients. Take advantage of their research and knowledge.
problem in your trading plan, don’t hesitate to consult a financial analyst.
Find an experienced and performance oriented professional who is providing tips
to their clients. Take advantage of their research and knowledge.
7.
Long term strategy
Long term strategy
After 12 month again assess
your performance and decide whether you are ready to commit more capital to the
stock market or not. But we assure you with professional help and your own
knowledge you will surely be a winner in Indian or any stock market.
your performance and decide whether you are ready to commit more capital to the
stock market or not. But we assure you with professional help and your own
knowledge you will surely be a winner in Indian or any stock market.
General
Market Advice for a Trader:
Market Advice for a Trader:
Following are the general
market advice for a Trader;
market advice for a Trader;
1. Never
chase a stock.
chase a stock.
2. Buy
when markets are in the grip of panic.
when markets are in the grip of panic.
3. Only
buy fundamentally strong stocks, which are undervalued.
buy fundamentally strong stocks, which are undervalued.
4. Buy
stocks grown in top line and bottom line over the past years.
stocks grown in top line and bottom line over the past years.
5. Invest
in companies with proven management.
in companies with proven management.
6. Avoid
loss-making companies.
loss-making companies.
7. PE
Ratio and Growth in earnings per share are the key.
Ratio and Growth in earnings per share are the key.
8. Look
for the dividend paying record.
for the dividend paying record.
9. Invest
in stocks for sure returns.
in stocks for sure returns.
10. Stocks have been
the high yielding asset class over the past.
the high yielding asset class over the past.
11. Stocks are an
asset class.
asset class.
12. The basic
property of any asset class is to grow.
property of any asset class is to grow.
13. Buy when
everyone is selling and sell when everyone buys.
everyone is selling and sell when everyone buys.
14. Invest a fixed
amount each month.
amount each month.
