A lot has changed for investors due to digitisation. Before the emergence of digital trading, investors traded physically at stock exchanges. Now they buy and sell financial securities via electronic trading platforms. These platforms allow uninterrupted access to securities listed on different stock exchanges. Someone could be sitting in Hyderabad and buying stocks listed on National Stock Exchange (NSE) via an electronic trading platform. With the help of an internet connection and a smartphone or laptop, anyone can access trading platforms and make investments.
Besides an electronic platform, you will need an online trading account to buy and sell securities. Earlier, when trading & demat accounts did not exist, one had to be present physically at stock exchanges to make trades. Online trading is also supported by Demat or dematerialisation accounts. A trading account can only help investors purchase and sell securities. To hold securities in their digital format, you need a Demat account, which can be opened instantly. Even when you have all the resources, online trading is not easy. Here are some tips to succeed with digital trading in today’s scenario.
Choose a Research-Oriented Trading Platform
Investors consider numerous factors before buying or selling securities. For example, an investor might consider a company’s financial performance and market cap before purchasing its stocks. Research is an integral part of investment decision-making in today’s era. Investors must choose a trading platform that offers research support. A research-oriented trading platform will keep you posted with market news and trends. It will also have advanced charting and technical analysis options. When you make decisions based on research, you are likely to earn high returns.
Do Not Skip Paper or Virtual Trading
Most trading platforms allow investors to start with paper or virtual trading. It is beneficial for novices trying to succeed with online trading. You will not use real money to buy and sell securities with virtual trading. Virtual money is used in paper trading, but the performance of assets is the same as in the actual market. Since the assets perform as original, investors get to understand the financial markets. It will allow investors to understand price swings and market conditions. One can also test their investment strategies with virtual trading. Once investors are sure, they can bet real money and earn high returns.
Don’t Forget to Diversify
Let us say you open an online trading account and invest in stocks of a particular company. After six months, you sell the stocks and earn a profit. However, it does not mean you will continue to buy stocks of that particular company and ignore other assets. Portfolio diversification is a must for succeeding with digital trading in today’s era. Stocks, bonds, derivatives, warrants, currencies, commodities, mutual funds, ETFs, and many other instruments are available for investors. Try investing in different assets to minimise risks. Even when some assets are underperforming, you will have other assets to make a profit.
Understand the Market Behaviour
It is crucial to make investment decisions based on market conditions. If the market is down, you cannot expect high returns on your investments. If you are new to digital trading, try to determine bull and bear markets. During a bull market, the price of securities experiences an upward trend. Investor sentiment is positive in the market, and companies make profits.
On the other hand, investor sentiment becomes negative during a bear market, and trading volume decreases. Also, the price of different securities goes downhill for an extended period during a bear market. Consider the trading volume, investor sentiment, volatility, and liquidity in financial markets before investing. These factors will allow you to understand the market and make informed decisions.
Know Your Risk Tolerance Level
An online trading account offers uninterrupted access to different securities. For the same rationale, some investors start making compulsive or emotional trades. As a result, they might lose their trading capital and end up with a huge loss. Investors need to determine their risk-taking capacity before making investments. You cannot invest more than you can suffer in a loss. There’s no point in taking unnecessary risks and jeopardising your trading capital. Focus on building long-term wealth by making sensible trades and avoiding risks.
Do Not Ignore the Power of Portfolio Monitoring
You cannot make investments and neglect them for an extended period. You must monitor your investments regularly to identify price trends and prepare exit strategies. You can apply for an instant Demat account to view your holdings at all times. Institutional investors and organisations depend on new-age portfolio monitoring solutions to gather insights. With the help of portfolio monitoring, investors determine the risks beforehand. These risks might hamper the performance of assets, and investors must address them timely. When investors monitor asset performance at all times, they can decide when it’s the right time to sell.
Use the Stop-Loss Technique
The stop-loss technique allows investors to pre-decide the risk they are willing to take with a trade. Stop loss can be a particular amount or a percentage of the total trade value. Whenever the asset price goes below a pre-decided price, they are sold to limit exposure. The stop-loss technique limits the losses for investors and allows them to preserve capital.
Have an Investment Plan
You must have a definite investment plan or strategy to succeed. There must be some financial objectives you wish to achieve through trading. All investments must be aligned with the objectives for better results.
In a Nutshell
Online Demat and trading accounts do not guarantee success for investors. You should have a well-researched investment strategy to succeed with digital trading. It is essential to avoid unnecessary risks and make compulsive investment decisions. You can choose a reliable trading platform to get started with digital trading. The time to start building wealth with digital trading is now!