Easy accessibility of stock markets through demat and trading accounts has increased the number of retail investors. Individuals can make significant profits in the stock market if they know what they are doing. This post will help traders to understand the basic rules of online trading.
What is Online Trading?
Online trading in stock markets refers to buying and selling dematerialised financial securities, like stocks, bonds, mutual fund units, derivatives, government securities, etc. Since 1996, the Indian stock market has shifted to online platforms. Stock exchanges operate online to process trade orders. Any person in India can start online trading by opening a demat and trading account with a stockbroker registered with the capital market regulator – the Securities Exchange Board of India (SEBI).
Rules Guide for Successful Online Trading
Profitable online trading requires managing risks through smart and informed decisions. After precise elaboration on what is online trading, here is a quick guide for online trading rules. It can help individuals to trade smartly to increase the odds of profitability and reduce the risk involved in online trading:
- Have a Trading Plan and Be Disciplined
The key to successful online trading is to stick to the plan. Stock trading requires a disciplined approach without any overstressed emotion. Only planned trades can go well for traders as they need to be disciplined. It will help traders to focus on quantitative factors without being affected by emotions like fear, stress, greed, etc. Disciplined trading can reduce the chances of huge losses. Hence, traders must have a trading plan and take moves as per trading strategies.
- Protect Trading Capital First
One of the strategies of successful traders is to protect their trading capital first. Traders should focus on cutting losses first rather than chasing profits. Most traders find it good to sell a security when it falls by 5% from the purchase price rather than selling it later at a high loss. It can prevent traders from huge losses, and they will be able to protect their trading capital. Traders prefer to use stop-loss to limit trading losses.
- Keep Scanning the Market to Gain Knowledge
Remember that understanding the market intricacies is a continuous process. Think of online trading as continuing education. Traders can have more learning opportunities each day. Traders should know that the market environment is dynamic. Scan the market, understand the facts in economic reports, and focus on making strategies with sharpened instinct. The better the understanding of the past and current markets, the better the trading decisions will be. While selecting a broker to open demat account and trading account, traders can check the frequency of research reports that brokers send to their clients.
- Trading Should be a Business; Not a Hobby
To be successful in online trading, individuals must approach trading as a business. If a trader takes it as a hobby, there may not be a commitment to learning. If it is treated as a job, it can frustrate traders because there is no regular income. Therefore, it is more like a business that includes losses, expenses, uncertainty, and risk.
- Take Calculated Risk Only
Losing money can be traumatic for any individual. If it is a huge amount, it can be enough to make him exit from stock trading. Therefore, every trader must ensure that they look at their financial strength before starting online trading and use the amount if it is truly spare.
- Know When to Stop Trading
Whenever a trader meets losses in the stock market, they may be tempted to trade more in the hope of recovering the losses. It is considered a wrong approach and can be a slippery slope towards more losses, especially if a trade is placed without required research. If traders want, they can take a break from trading to start afresh.
For new entrants, these rules and actionable tips will be much helpful to avoid distractions that may lead to losses.