Beginners who want to build wealth from the stock market hesitate to take the first step towards stock market trading because the fear of losing money stops them from entering into it.
Stock Trading as the name suggests is a trading method where people are involved in the transaction of shares of different companies in the stock market.
You may feel surprised to know that investing in the stock market with limited funds actually helps you double your wealth.
A small investment with a regular amount will give you a wide experience of trading in the stock market. You only need to take care of a few things:
1) Set a Goal
An investment whether it is small or big has a specific reason to invest. Hence, many stock analysts advise you to set a goal before getting into the stock market as, without a clear objective, one can never achieve desired wealth.
Secondly, the goal of achieving outstanding returns, helps you decide the type, tenure and risk appetite. If you are a beginner, it is suggested to invest in the long run. This is because long term investment gives you ample opportunity to earn knowledge of the stock market. Also, setting a goal lowers the chances of investment errors.
Equity trading investment gives you a steady return if you invest in the stocks for the long term.
2) Control Your Emotions
Excessive emotions can harm your investment amount. Hence it is suggested to control your emotions while doing stock trading. Positive stock trading returns make people happy, however, negative returns like losses make people unhappy and that’s why many people stop investing.
3) Focus on the Fundamentals
Successful investments can be done only if investors have an in-depth understanding of the stock market. You can invest and earn a potential return from the stock market only if you focus on the fundamentals of the stock market and keep a track of every stock market movement. You can do this by doing proper stock market research. Having adequate knowledge of the stock market can mitigate your stock market risks.
One of the best investment strategies to mitigate the risks is diversification. It allows investors to divide the investment amount into different investment categories along with their risks. Diversification of the money into different stocks will help you balance your portfolio as if one stock underperforms, the other performs well.
Best Way to Trade Without the Fear of Limited Funds
Margin trading provides you with a way to purchase stocks that you can’t afford. Here, you need to borrow some amount of money from the stockbroker. In margin trading, the margin is being paid in both cash and in shares.
It is a prominent feature in stock trading as it allows investors to take larger portions and uplift their returns to another level. Here, the stockbroker plays a pivotal role as it funds your margin trading transactions.
The Process to Start Margin Trading.
The first and foremost step towards margin trading is to place a request to the stockbroker so that it can open a margin trading facility account. After opening the margin trading facility account, the stockbroker maintains a minimum balance which is called minimum margin.
Before getting started into a trade, investors are required to deposit a fixed per cent of the whole traded amount and the rest of the amount will be funded by the stockbroker.
Please note that the interest rate is charged by the stockbroker.
The margin can be settled later when all the positions are squared off.
In margin trading, the profit can be counted only if you earn a profit that is higher than the margin, otherwise, you will suffer from a huge loss.
Benefits of Margin Trading
Apt for Short Term Profit Generation
Margin trading is suitable for investors who want to generate profits through short term price fluctuations but don’t have enough cash for the investment.
Leverage Market Position
With margin trading, investors are able to buy large volumes of stocks with a minimum amount and hence it increases their leverage. Leverages allow them to take advantage of small market movements. However, at such points, one is required to be a little cautious as a negative movement in the stock price leads to huge losses.
Margin trade works only when the rate of return is higher than the interest on the loan. For instance, if you have invested ₹40,000 in stocks in a hope of higher returns but the stock value has decreased to ₹35,000. In such cases, you have to face huge losses plus you have to pay the interest payment against the loan from the broker.
Risks Involved in Margin Trading
Margin trading helps traders to uplift the stock trading returns, on the other hand, it magnifies losses as well. Also, you can end up losing more money than the investment.
It may be noted that investors are required to maintain a minimum balance in your margin trade facility account. In case, your balance goes less than the minimum balance required, then your broker would ask you to refill the balance amount.
Best Margin Trading Practices without the Fear of Limited Funds
Investors who want to earn through margin trading, need to pay special attention. Do remember that margin trading leads to both profits and losses. Hence, margin trading is only for those who have sufficient cash in hand.
Borrowing Lesser Than The Allowed Limit
You should borrow only more than the full allowed limit. Give a try with a smaller amount upfront. If you believe that you can achieve great returns from margin trading, go for it.
The amount of money cannot act as a limitation for investing in the stock market. A strong goal with the right decision can help you achieve great wealth. You are only required to Open Demat Account with a reputed brokerage firm like Swastika and you are ready to go. With Swastika’s Demat account, you can start an investment journey with a little money.