Investing in the stock market is a great way to make money. An investor can look at investing in equity, commodity, debt, and currency markets to grow wealth. Anyone with a small amount of money can start investing to grow the funds. What matters are the right stocks in a portfolio, an entry-exit strategy, and a good knowledge of the market to maximize returns?
To start investing you will need brokerage accounts i.e. Demat account and trading account. You may want to know here how to open a Demat account. Opening Demat and trading account is very simple and can be done online. You need to identify a broker who is registered with any one of the depository bodies- CDSL or NSDL.
The documents required for opening a Demat account include PAN card, Address proof (Passport, Aadhar Card, Voter ID, Driving License, any utility bill, Bank Statement), passport size photo, and a cancelled cheque. If you choose the Bajaj Financial Securities Limited Trading account, you can save on brokerage costs as you have to pay a flat brokerage rate irrespective of the trading volume.
The stock market is highly volatile. Tapping the market volatility suitably is fundamental to successful trading. There is no best time to invest in stocks for confirmed profits. But you can strategize your investments anytime to reduce losses.
Here’s how to minimize the loss in stock trading:
Diversify your Stocks
Traders and investors must have a good portfolio of stocks. If few stocks underperform, others may bring a balance. The risk and volatility associated with a particular asset type can be reduced with a diversified portfolio. Stocks of different industries are least likely to be affected equally by the market risk.
By and large, with a diversified portfolio, investors are more secured against market risks.
Place Stop Loss
Putting a stop-loss sells a specific stock the moment it is triggered. Take for instance, if you have purchased a stock at Rs. 100 and can accommodate loss up to Rs. 92, then putting a stop loss at Rs. 92 will limit loss. Stop-loss limits losses when used appropriately and is a smart investment strategy. Generally, investors panic and make abrupt decisions when a momentary reversal in trend occurs. It is thus wise to put a stop-loss and stay on track.
As a trader, you must know where to put a stop loss because setting it up too far may bring huge losses.
Don’t hold on for long
At times, holding on to stock with the expectation of a change in trend results in losses. It should be accepted that avoiding losses completely is far from being achieved in the stock market. Therefore, the target of an investor should be minimizing the losses.
Do not judge a stock by its past performance
As we say don’t judge a book by its cover, similarly, a stock’s future performance does not rely on its past performance, completely. Stock markets and stocks are influenced by a multitude of factors. It depends on the state of the economy of a country which depends on the market fluctuations of other countries as well.
Every day is a new day in the stock market. Though a stock’s past performance throws light on the company’s strength and weakness, relying on its previous records completely is not advisable. Along with past data, look for well-defined trading strategies.
Identify your Risk Appetite
As an investor, you should know your capacity to bear losses. Assessment of your risk appetite will guide your decision-making power. It will allow you to plan an appropriate exit strategy in the worst-case scenario.
Risk-appetite depends on age, income, investment goals, and time horizon as well. Hence, the purpose of investment and time period to make an investment should be clear prior to investing.
