How to start equity investment
As Indian investors transition from the conventional forms of investing in gold or real-estate to equities and commodities, there are various alternatives in terms of investment avenues and service providers. This abundance of alternatives often leaves beginners confused on where to begin their investing journey.
Here are a few factors you must consider and have clarity on before you begin equity investments:
Establish your purpose of equity investment
First and foremost, as an equity investor, you must be clear on the objective of such investments. What kind of an investor are you? Do you have enough investment knowledge and time to make trades and monitor on your own? Are you looking at a short-term investment horizon with frequent intra-day trading, or are you looking for investing one time and holding your stocks for the long term instead? What kind of returns are you expecting and whats your risk profile?
There are two broad forms of equity investment –
Day trading involves making trades that last for few hours, minutes or even seconds, and all positions are opened and closed within the same day. Day trading is carried out with the purpose of short-term gains
On the other hand, long term investing involves making trades that stay open for months or even years. They are also known as buy-and-hold trades, as opposed to day trading which is referred to as intraday trades.
The decision-making process for both forms of investments are quite different and both require different acumen to invest correctly. Your goals determine your choice of investment option.
Choose a broker and trading platform
Once you are sure of your investment objective, you can then pursue choosing a broker. Investors must be cautious about selecting the right partner for their journey, as it comes with multiple ramifications. Each broker is different from the other in terms of the services they provide. Detailed below is a list of types of brokers along with a list of factors that you must consider before committing to a broker.
Types of brokers
Discount brokers :
Discount brokers provide a trading platform where you can carry out your buy and sell orders at a nominal brokerage. If you only want a trading platform without any research support, then a discount brokerage account could be right for you.
Full-Service brokers :
These brokers offer a wide array of alternative investment products for the investor. In addition many of them also offer loan or protection products. They also have investment research teams that provide analyst recommendations to their customers. First-time investors and investors who seek stock recommendations can benefit from these immensely. Many of the full service brokers have also introduced discount pricing plans and it is prudent to check for the same. This may help you get the benefits of both pricing as well as the service that a full service broker generally provides.
Some factors you must look for when choosing a broker :
- Make sure that their trading platform is simple, secure, and can be used seamlessly on both mobile and desktop
- What are the products offered by a broker? As an investor you would need a wide basket of products like equities, mutual funds, fixed deposits, loans, insurance, etc. and it helps to consolidate all your requirements at one place.
- Check the quality of customer service. Are they offering any additional value-added services? How important are they to achieve your investment objectives.
- What are the costs for various services? Cost in isolation may not give the correct perspective, it helps to look at the cost vis a vis the services and benefits offered.
Make a plan
Now that you have chosen a brokerage and have an open account, what's next? Most traders start by researching and analyzing the sector or company that they're interested in. Understand analyst reports and buy/sell recommendations before you make your investment. How much do you want to invest, and at what cost? How far are you willing to let a stock price fall/ go up before you buy or sell? Investors are advised to start with small amounts until they gain confidence and manage risks better.
Some brokers also offer virtual trading platforms. These platforms offer the flexibility of trying out dummy investments in a real stock market environment but with no risk of losing money. This helps investors practice and understand the processes before they start investing in the real environment.
Equity trading, while risky, offers excellent returns to investors. Reach out to experts at ICICIdirect to know more about equity trading and how to get started.
Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.