What is share trading?
Shares or stocks of companies are partial ownership of any business or company listed on the stock exchanges. Stocks of companies change hands during a trading day at multiple price points. You can purchase or sell any number of shares through a Demat and trading account provided by an online broker. Stock trading is becoming popular as more people are learning about financial markets and stock investing.
Investors who engage in the long-term game invest in fundamentally strong companies. On the sideline, they also take short-term bets on companies by looking at the technicals and other factors. This method of buying and selling shares in the short term is known as trading. Trading can be performed on an intraday basis where you take a position and exit it before the closing bell. Or you can carry forward that position for multiple days or weeks. This form of trading is called swing trading.
What are the requirements for stock trading?
To trade in shares, there are two primary requirements. To begin with, you must have a Demat account, and secondly, you need to have a trading account. Using the combination of these two accounts you can undertake trading without any difficulties.
Earlier the task of opening a Demat account used to be tedious. But times have changed now. With the rise of discount brokers like Zerodha, you can open a Demat and trading account with India’s top brokers within minutes. That too from the comfort of your home. These brokers also provide their mobile trading apps so that you can place your trades from your smartphone. This feature lets any individual trade shares using just a smartphone. You don’t require powerful PCs anymore to undertake to trade. With the advancements in technology, even an entry-level smartphone is capable enough to embark on share trading.
How do trading apps work?
Online brokers provide various platforms or terminals using which you can trade stocks, options, commodities, etc. The most common platforms to trade are a web browser and a mobile application.
A mobile app is very similar to a web application where you get all the necessary tools and features to undertake trading. These apps enable you to add funds to your trading account. Buy and Sell shares and also take intraday and swing positions in any equity or derivatives contract. Using a trading app, you can trade from anywhere in the world provided you have an internet connection. You can avoid the hassle of carrying a laptop or finding a PC in order to trade.
Here is a chart of the top 5 trading apps according to their ranks in India.
These trading apps are mapped with your demat account and whatever transactions you perform using the app are registered with your broker. It happens in a similar way as you use your web browser.
Things to know while trading stocks?
To trade stocks you just need a trading and demat account. Whereas to make money by trading you need to acquire skills and knowledge. Let’s look at some of the key things you should keep in mind before trading.
Don’t confuse between trading and investing
Trading stocks and derivatives are alright, but trading with your long-term holding is not good. You should keep your long-term investments aside and trade with a separate capital. It is always advised to keep not more than 20-25% of your total capital aside for trading. So that even if you blow up your entire trading capital. Your long-term investments would be still intact.
Trading requires skills and knowledge
In today’s digital era, social media has portrayed share trading as a game where you can multiple your money overnight. This is not accurate. Trading and earning profits is not easy. It takes years of experience and practice to become a profitable trader. Therefore try to learn first about the different realms in trading before jumping to make money.
Trading involves multiple risks
Before trading stocks or commodities, it is important to know the risks associated with them. Most of the brokers provide 10-20 times leverage for intraday trades which makes it even riskier. You could potentially lose your entire capital in a streak of bad trades when trading with leverage. Position sizing and stop losses are some more essential points that you should keep in mind when trading any security.
Trade to hedge your portfolio
If you are already investing in the stock markets and have a sizeable investment amount. Then it makes sense to hedge your portfolio from the short-term market volatility. With this, your portfolio will remain safe as well as you can make some gains by trading the markets. Overall you should focus on trading in order to hedge rather than to speculate.
By looking at the above-mentioned points, it can be said that the share trading apps provided by the stockbrokers in India are safe. Millions of users use these apps daily without any issue. Whereas the concept of trading comprises certain risks.
Trading involves some additional risks such as market risks and capital risks. All in all, it is safe to use trading apps, but you need to have certain skills in order to become a profitable trader. Without adequate knowledge, you can lose a lot of money in a short amount of time if you don’t trade shares with the right approach.