Trading in securities is a great way to generate exponential returns and build substantial wealth. However, trading in financial markets is not as easy as it seems. You require a certain level of skill and discipline to earn higher returns by trading in securities. Did you know that around 90% of day traders lose most of their money within the first three months? It is an eye-opening statement for those considering trading as an easy task. Besides understanding the market trends, you must follow the right investment practices to become a successful trader. So, let’s delve deeper and understand how to master the art of trading.
Understanding trading and demat accounts
Before understanding the secrets to trade, you must know the importance of online trading and demat accounts. Once you decide to buy and sell securities, you need an online trading account. Without a trading account, investors cannot buy or sell securities like derivatives, stocks, commodities, mutual funds, and exchange-traded funds(ETFs). It is a specialised financial account used to purchase and sell securities. A Dematerialisation (Demat) account holder will deposit some funds, which can only be used to buy/sell securities.
At some point, you might want to hold securities for months or years. When the investment horizon is long, investors might get better returns. However, not everyone aspires to become a day trader or a short-term investor. It is where traders will require a Demat account for holding stocks, derivatives, commodities, and other securities. It is an online account used to store securities in digital format, thus eliminating the need to keep securities in their physical form. Since securities are held in digital form, they are less likely to get lost or stolen. According to the SEBI (Securities and Exchange Board of India), opening a Demat account for holding securities is compulsory.
Most traders open trading and a Demat account with the same financial firm. By opening both accounts, traders can invest in short-term and long-term opportunities. In India, traders must open a Demat account with a trusted Depository Participant (DP). A DP is a registered firm with permission from SEBI to distribute Demat accounts. Assume you open a BSE account for selling and buying securities on the Bombay Stock Exchange. If you decide to hold some securities listed on the Bombay Stock Exchange, you will need a Demat account too.
Best practices for a successful trading account
Some traders fail to generate returns and blame it on luck. But, in reality, they fail to implement the required trading practices for maximising returns.
Here are some ways to become a successful trader:
Set realistic goals and investment strategies
The first step to becoming a successful trader is deciding on the financial objectives. What do you want from the trading account after a given period? You must have clear financial objectives, as investments will be made accordingly. Besides financial goals, you must also have a clear investment strategy. Successful investors align their investments with the main strategy to achieve financial objectives. For example, assume someone has an ESG-centric investment strategy. In such a case, the investor will try to buy securities of sustainable corporate entities. Without a definite investment strategy, it is like playing aimlessly on a football field without a goalpost.
Diversify your investments
Don’t invest in similar types of companies via a trading account. The idea is to diversify your investments in different industry sectors to minimise risk. Even if an industry sector is underperforming, you will still have other investments to generate returns. Portfolio diversification is the key to becoming a successful trader with minimum risks and vulnerabilities.
Rely on high-end analytics
To unlock the secrets of a successful demat account, you need to rely on high-end analysis. Successful investors study market reports, charts, and performance indicators to make informed decisions. At present, trading platforms are available with personalised research notifications. You don’t have to indulge in research, as the trading platform will do it for you. However, you still have to monitor market trends, IPO launches, disruptions, and other scenarios. Without high-end insights, you will never become a successful trader. So make data analytics an integral part of your investment decisions.
Have some patience
Day trading is not everyone’s cup of tea. Don’t jump to conclusions if you have just opened a BSE account and started trading. Have patience and wait for the right investment opportunities to sell or buy securities. Emotions must never guide your investment decisions.
Final words
To become a successful trader, you require patience and financial discipline. Also, you will need access to high-end research for making informed investment decisions. Not to forget, having a well-defined investment strategy is a must for traders. So open a trading account and start buying securities today!
