As the pandemic has extended, young people, including college students, have more time at home. There is an increasing rate of investment in the stock market as it’s simple to invest with Demat and trading accounts online. But ‘how to do online trading’ is not just about opening a trading account. It requires structured planning that may be ignored by beginners. Let’s discuss the problems a student, as a beginner may have to face.
Quite simply, as a trader/investor you need money. The savings of a student may not be enough to buy quality stocks. It does not mean you need lakhs or crores to invest. But a few thousand rupees cannot buy quality stocks.
Beginners may not know the hidden and uncalculated risks and their investment portfolios will begin with losses only. Make sure you become familiar with the risks involved with margin, leverage, options, futures, etc.
Penny stocks attract
Penny stocks are lower priced stocks of low market capitalized companies. Most students may think of it as an opportunity to invest in low priced stocks as they can buy these in a substantial amount. But these stocks are mostly illiquid. Remember that penny stocks may not attract adequate pricing when you want to sell them or you may find it as a non-existent profit margin. You should not choose high-risk trades with a few thousand rupees.
Lack of knowledge
If you are entering the stock market, you must know certain things about investing and trading like basic terminology, money management, basic strategies and application of those strategies. Though research in the stock market is more time taking and difficult than other fields, knowledge and experience will be paid off in trading.
Many students do not think about debts and perform trades using borrowed money. The first mistake is borrowing money and second is investing borrowings in the stock market. If you do not have any idea how to pick stocks, avoid borrowings for trading as you may not have enough money to return a borrowed amount and you may have to pay for your losses also. Over-leveraged trade has wiped out a large percentage of investors.
Several students may go for underlying concepts like options and invest their savings. Because they need to pay a part of the total value of assets. But there are various aspects to research underlying value, exercising or selling, asset volatility, time to expiration, etc.
Lack of qualities needed for investing/trading
No doubt that the stock market is not for everyone. Lots of special qualities are required to have a successful trading journey in the stock market. Some of these are as follows:
- Patience: You have to tolerate the stress of waiting for the right time without being angry. Otherwise, your investment decisions will be affected by fear and anger.
- Discipline: Do your homework and have discipline. Be disciplined in investing and holding your investments as well.
- Emotion free: There is nothing like intuition in the stock market. It is all about strategy and knowledge only.
Here is the answer to your question, how to start share trading. Follow these points.
- Learn to Read. Build a sense to understand market trends.
- Learn to analyze.
- Consider your finances.
- Find a reliable broker with low cost and fees. There are many brokers, some of which are better for investors and some for traders. Better if they provide tools for research.
- Practice before you start trading.
The Bottom Line
Do not pursue investing and trading in the stock market as a casual hobby. Whatever type of investment you choose, you should have clarity on your saving/investing, objectives, time horizon, and risk profile. Keep rational goals. It will help to learn more.