Important tips for Equity Traders/Investors

October 24, 2009

Following are the things to be considered by an equity trader before executing the trade. Successful stock trading involves many factors such as selecting a good company, diversifying the portfolio, support of a good broker, etc. If you are lacking any of these factors, it affects your trading very badly. Following are the things to be taken care by an investor before trading or investing.

Know your risk tolerance :-
Understanding yourself is very important; you should know your risk tolerance, how much you can afford to invest, how much loss you can suffer, etc. Before investing in any type of stock, know how much risk you are willing and capable to take. In simple terms it means having a look at how much money you can afford to lose.

Invest in the company not in the stock :-
People normally go behind the stocks without knowing much about the company. Some stocks might perform well in short term without a strong base of business but this growth is not stable. If a company has to perform well in long run it should have a strong and deep rooted business. It is always better to invest in such companies than going behind market trend.

Know your broker :-
Take time to understand your broker, enquire about his history, past performance, commission charged, etc. Sometimes brokers might have a vested interest in some stocks, including ownership of the stock, in this case they might compel you to buy more stock to raise prices. This could be false inflation of the stock's value therefore making it even more risky.

Reduce your Risk by Diversifying :-
Reduce your risk in stock investments by diversifying. Purchase good stocks from different industry, this will help you to reduce the investment risk because if one stock fails badly, the other will generate profit this will help you to avoid the overall loss.

There are thousands of stocks in the market to choose from, how do you determine the one that best suits for you? After all, if you pick incorrectly, you could lose all of your hard-earned money. But if you can understand the terms mentioned above then the likelihood of you losing your money will diminish significantly and the chance of making huge profits is more.

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