Article

5 Golden Rules of Trading

Nutan Gupta

26 Apr 2018

If you ever wondered of entering into the world of stock trading but feared of failing, here is the mini guide for you that tells about the 5 golden rules which help to start off and ace the trading world:

KYC (Know your Company):

The first step to any investment should be to know where you are putting your investment into. The company you are putting your money into should be strong on fundamentals. Going with the current trends, almost all IPOs are giving good returns on the very day they are listed. IPOs can be a reliable method to make money in short-term provided one has done ample amount of research about the company.

Rise when it falls:

As a very common human psychology reads "When danger strikes either one fights or flights", same is the case with investor sentiments. Around 80% of the investors pull out of the market (flight) when it tumbles down, they are the ones who have already lost some of their money. The rest 20% are the ones who go short with their trades and also the ones who put in their money when stocks are at their lowest.

Keep Calm and Wait:

Not losing your calm is like one of the key gospels if you really want to be a long-time player in the trading world. If you lose patience very often then stock trading is not meant for you and you are not meant for it. There may be times when continuously days will pass when you make no money instead just lose a part of it but don’t panic in these times, wait for the right moment to make your move. Long-term equity trading can give an average of at least 7% returns. In recent times, several stocks have given returns as high as 24%.

Know the world around:

If you feel that just knowing the business world news you can manage to earn money in stocks, then you are in real deep waters. In the ever-connected world, there are factors which can drive the stock markets go for a roller-coaster ride. Taking the example of DGMO’s press conference regarding the surgical strike by India on Pakistan, BSE Sensex toppled by 1.6% or 500 points, highest fall in last three months. Recently issues like North Korea’s missile tests and Indo-China Doklam stand-off had led to swings in the stock market.

Don't use leverage:

This should be the most important golden rule for any investor who is entering fresh into the world of stock trading, never use borrowed money to invest in stocks. Even if you want to start investing, Rs 1000 of your own is okay but not even in one’s dream one should think of investing using borrowed money. This learning can save you from the ghastly stage of bankruptcy if even by the whisker of a chance you lose all your invested money.

Now as you know the 5 magical golden rules, what are you waiting for? Take the leap and stride into the trading world.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 

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5 Golden Rules of Trading

Nutan Gupta

26 Apr 2018

If you ever wondered of entering into the world of stock trading but feared of failing, here is the mini guide for you that tells about the 5 golden rules which help to start off and ace the trading world:

KYC (Know your Company):

The first step to any investment should be to know where you are putting your investment into. The company you are putting your money into should be strong on fundamentals. Going with the current trends, almost all IPOs are giving good returns on the very day they are listed. IPOs can be a reliable method to make money in short-term provided one has done ample amount of research about the company.

Rise when it falls:

As a very common human psychology reads "When danger strikes either one fights or flights", same is the case with investor sentiments. Around 80% of the investors pull out of the market (flight) when it tumbles down, they are the ones who have already lost some of their money. The rest 20% are the ones who go short with their trades and also the ones who put in their money when stocks are at their lowest.

Keep Calm and Wait:

Not losing your calm is like one of the key gospels if you really want to be a long-time player in the trading world. If you lose patience very often then stock trading is not meant for you and you are not meant for it. There may be times when continuously days will pass when you make no money instead just lose a part of it but don’t panic in these times, wait for the right moment to make your move. Long-term equity trading can give an average of at least 7% returns. In recent times, several stocks have given returns as high as 24%.

Know the world around:

If you feel that just knowing the business world news you can manage to earn money in stocks, then you are in real deep waters. In the ever-connected world, there are factors which can drive the stock markets go for a roller-coaster ride. Taking the example of DGMO’s press conference regarding the surgical strike by India on Pakistan, BSE Sensex toppled by 1.6% or 500 points, highest fall in last three months. Recently issues like North Korea’s missile tests and Indo-China Doklam stand-off had led to swings in the stock market.

Don't use leverage:

This should be the most important golden rule for any investor who is entering fresh into the world of stock trading, never use borrowed money to invest in stocks. Even if you want to start investing, Rs 1000 of your own is okay but not even in one’s dream one should think of investing using borrowed money. This learning can save you from the ghastly stage of bankruptcy if even by the whisker of a chance you lose all your invested money.

Now as you know the 5 magical golden rules, what are you waiting for? Take the leap and stride into the trading world.