We all have that one friend or family member who has created a secondary source of income through online trading. Today, it is far more easy to enter the stock markets, thanks to online trading platforms. All you need to get started is a computer or a smartphone, a demat account and some funds to invest in the markets.
Here's a comprehensive guide to online trading for beginners. This guide will provide you with an understanding of what online trading is, how to get started, risk management techniques, and more.
Online trading involves buying and selling financial securities, such as stocks, bonds, and commodities, through online platforms. These platforms let you access financial markets where you can trade from the comfort of your home or office. With online trading, you can access real time data related to stock markets and use various analytical tools for informed trading.
You can execute trades almost instantly and take advantage of market opportunities in real-time. Additionally, you can monitor your portfolio and track its performance at your convenience.
Read More - 5 Tips For Share Market Trading
You can follow this guide to understand how to begin online trading as a beginner:
Before diving into online trading, you must try to learn about the stock market, how it works, and who the market participants are. You must also explore the different types of financial instruments available for trading, for example, stocks, bonds, ETFs (exchange traded funds), etc.
It is important to select a SEBI-registered and reputed broker that offers a user-friendly online trading platform. A SEBI-registered broker is one that is certified by the Securities and Exchange Board of India, ensuring they adhere to regulatory standards and practices. While selecting a broker, check the brokerage fees being charged by the broker. You can also look for any research tools being offered on the trading platform since it can enhance your online trading journey.
To start trading, you'll need two types of accounts: a demat account and a trading account. The trading account is used to execute your buy and sell orders for shares, while the demat account holds your securities electronically, ensuring they are safe and easily accessible. For opening a demat and trading account, you'll need to make an application with the broker and provide the necessary KYC (Know Your Customer) documents.
Online trading can offer positive returns only if you have a trading strategy in place. As part of your strategy, check your risk tolerance (which means, how much risk you are willing to take), investment goals (for example, saving for retirement or generating regular income), and time horizon (how long you plan to invest).
Depending on your objective, you can adopt day trading (buying and selling within the same day), swing trading (holding stocks for a few days or weeks), or long-term investing (holding stocks for months or years). You can also use a mix of these trading/investing styles to achieve your goals.
As a beginner in online trading, you can learn about two essential types of analysis that can help you enhance your trading approach.
First, there's fundamental analysis, which involves evaluating a company's financial health and overall performance. In this, you need to look at factors like the company’s earnings, growth potential, industry scenario, etc., to understand the true value of a stock.
Another approach is technical analysis, which focuses on studying past market data and stock price movements. By examining charts and trends of stock price movements, you can predict future price movements and identify potential buying or selling opportunities.
Remember to start online trading with a smaller amount of capital, and as you gain experience, you can add additional funds to your portfolio. Online trading for beginners can be challenging, but with regular monitoring of your portfolio and taking calculated risks, you can achieve your financial goals.
Effective risk management is important in protecting your investments and ensuring long-term success in online trading. Take a look at these strategies for effective risk management:
|
Strategy |
Description |
|
Diversify your portfolio |
Diversification ensures that you are not overly reliant on a single asset or market sector. To manage risks well, you can spread your capital across different assets, such as stocks, bonds, and ETFs. This strategy reduces the impact of a non-performing or poor-performing asset on your overall portfolio, thereby minimising risk. |
|
Set stop-loss orders |
A stop-loss order automatically triggers a buy/sell action on a stock when it reaches a predetermined price. This helps limit potential losses by exiting a position before the price goes beyond acceptable limits. |
|
Limit use of leverage |
Leverage is about borrowing money to increase your investment. While it can boost profits, it can also amplify losses if the market goes against you. As a risk management strategy, use leverage carefully and make sure you understand the risks. |
'Woman loses Rs 23 lakh in online stock market scam'
'Lured by high profit, two people lose Rs 7 crore to stock market trading cyber fraud.'
You may have come across these news stories lately. These indicate a rise in fraudulent activities and scammers entering online trading. Today, phishing scams are very common, where fraudsters pose as legitimate brokers to steal personal information. Then, there are pump-and-dump schemes, where the price of a stock is artificially inflated before being sold off at a profit.
While SEBI has been actively implementing stricter regulations and closely monitoring trading activities, you must stay vigilant and protect yourself from any fraud in online trading. You can familiarise yourself with SEBI's guidelines on avoiding investment fraud and recognizing get-rich-quick schemes.
Online trading can be exciting and rewarding if you have a thoughtful approach and adopt a continuous learning practice. If you are looking for structured learning and expert guidance on online trading for beginners, Sharekhan Education can be the right platform. It provides comprehensive courses and resources to enhance your trading skills and market understanding.
Delve into the world of futures and options trading with Sharekhan expert guidance. Our comprehensive resources and intuitive platform empower you to make informed decisions and capitalize on market movements.
Embark on your stock trading journey with Sharekhan's comprehensive platform. Learn the fundamentals of equity trading, gain insights into market trends, and access powerful tools to make informed investment decisions.
Safeguard your investments with Sharekhan's secure and reliable Demat account. Our platform offers robust security features to protect your holdings, ensuring your investments are in safe hands. Open Demat account today and enjoy peace of mind while you invest.
Make informed mutual fund investment decisions with Sharekhan's expert guidance. Explore a wide array of funds to match your financial goals and risk tolerance. Start building your wealth today.
Leverage Sharekhan's market knowledge and experience to make informed decisions in the initial public offering (IPO) space. Our research and analysis equip you with the insights you need to identify promising IPOs and participate in their growth potential.
