In last few decades, people have witnessed the highly booming economy of online trading in stocks. No more those black coat gentlemen who vowed their elite ness with their snob looks are seen on the street of the stock exchange. Internet trading has opened thousands of opportunities for the layman to invest. Also, shifting the trend from savings to investments has got a revolutionary change in the stock market.
It is to be noticed that every coin has two sides and same applies to trading online. Unlike other businesses it is risky and calculative. Hence, the mediocre in form of stock brokers and brokerage firms emerged so as to provide access to stock exchange to each investor. Common features of online trading are the speed and easy access. Also, the availability at competitive prices has also provided another opportunity to the traders.
The black side of online trading is the fear of fraudulent activities that can eat whole of the investments. Also, being online, the frauds are tough arrest. Hence, prevention is better in this case. Thereby, here are some tips that may help any trader to avoid catastrophic situations while trading online.
?Do not trade with unregistered stock brokers or market intermediaries : non-registration with the stock exchange is the first sign of fraud. Any sensible service provider always follows the market rules, hence get registered with NYSE, NASDAQ or corresponding stock exchange. You may also come across some sub-brokers that may not be registered and offers extravagant services to the traders. Such people must be avoided as they induce investors to invest money at low cost and end up taking all the investments with them.
?Do not leave your transaction slip with the intermediary : leaving the transaction slip with the intermediary is way too risky. Any fraudulent transaction may be added by the intermediary resulting in huge losses. Hence, avoid such mistakes.
?Do not get overwhelmed by false advertisements or hyped declaration of growth of companies: companies need their share prices to rise and most of the times there are hyped performance levels discussed in the reports. Hence, do not trust blindly and invest huge amounts in the shares. The 2% rule must be followed and make sure that you integrate your investments.
?Do not follow other's investment strategies : be an individual and know the type of investor you are. Imitating other investor's may prove hazardous. Plan your investments and develop individual investment strategies. However, utilising other's experience and tips proves favourable but following them blindly is dangerous. Utilise online reports and statistical data available about the companies before investing in stocks to make your own investment strategy.
Do not pay sac to any promise of guaranteed returns : stock trading is way too risky and fluctuating. People promising assured returns are certainly involved in frauds. Many traders invest with mediocre who make false promises of assured returns and end up losing handsome amounts. Never invest heavy amounts to one stock. Integration is the best way to avoid huge losses.
Online investing is different from day trading. In day trading, an individual buys and sells shares in a very short period of time, within the same day in most of the cases, in order to gain from marginal movement in the securities.
Risks of Online Trading
If you are a new investor, you should be aware of the principles of investing, your investment goals and risk tolerance before entering into online trading. Being an online trader you may tempt you to trade very frequently or to be involved in over trading, which would result in increase in trading costs, complication in your tax related conditions and large losses.
Despite some limitations, online trading has improved the way stocks and other investment instruments, such as, bonds, mutual funds and currencies, are being traded, substantially, in the fast moving capital markets. So, should you should be a trader or an investor?
Being a Trader
Normally, short-term traders including day traders, who are also called market timers, do not gain profits from their investments consistently, since their investments are not based on the companies? fundamentals. Short term traders sit in front of their computer terminals throughout the day to see the movement of the particular stock. Day traders usually buy stocks on borrowed money to make quick profits, however, they bear very high risks of losing money. If you are a day trader, you should risk that amount of money which you can afford to lose. Short term traders do not ?invest? generally, since they are riding on the momentum on the particular stock, by seeing the charts. They do not research or look into the fundamentals.
Being an Investor
Investors generally look into the fundamentals of a particular stock, such as revenue growth, earnings growth, cash flows, debts and rate of returns etc, before investing into a company's stock. Investors also take in to consideration the valuation of the stock very seriously. Long-term investors take minimum risks as they study the risk/reward ratio associated with securities thoroughly. They achieve their long-term goals regarding their investments. Investors who are on a long-term horizon generally do research on a particular stock or get expert investment opinion from investment bankers in order to gain maximum benefits with limited risks. They also look into the history of the returns from a particular stock.
Investors also follow investment strategies, such as, ?top-down investing? or ?bottom-up investing,? which are being used to find sectors which would yield above-average or premium results. In ?top-down? investing, an investor investigates into the prospects of a country's economy and then decides about the particular sector before investing. In bottom-up investing approach, an investor is purely opportunistic and does research on various sectors of a particular economy and invests in as many sectors as possible without any restrictions.?
Conclusion
Although you may find the value of your investment decline in the short term, investing with a long-term outlook will more likely lead to better returns.
Both Amit Malhotra & Joel Arberman are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Amit Malhotra has sinced written about articles on various topics from Stock, Stock Market Crash and Investing and Trading. If you are new to Sogotrade:. Amit Malhotra's top article generates over 18100 views. to your Favourites.
Joel Arberman has sinced written about articles on various topics from Bird Flu, Initial Public Offering and Investments. Joel Arberman is the Managing Member of Public Financial Services, LLC. We help private companies through the process of going public via an initial public offering (ipo)or direct public offering. Learn more at. Joel Arberman's top article generates over 27100 views. to your Favourites.