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Equity Trading : Pros and Cons

30 Aug 2024

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Before you start investing in the stock market, you need to work your appetite for risk. Trading on equity has one universal fact – that it will not always be profitable. So start preparing for the inevitable before you get disappointed. Nonetheless, with the understanding of the factors that affects stock prices, both related to the company and to the economy, one is better equipped to predict when he should buy or sell shares.

While your understanding of the market will come only when you’re hands on with the process, however we can take baby steps in that direction by first understanding the pros and cons of trading on equity.

Since the pros easily outweigh the cons, let’s begin with the cons of trading on equity

Volatility
The stock market swings violently up and down in prices, which is termed market volatility. To deal with this, some traders go by the ‘buy and hold’ philosophy. It is based on the premise that if you accumulate stocks and hold them for the long term, your portfolio will do well because over time the market as a whole delivers better returns when compared to safer investments such as savings accounts. However, not all market experts agree with this philosophy. Some investors have trouble dealing with the wild swings the market takes and are better off dealing in safer investments.

Risk of a Major Crisis
Stock markets have had corrections and crashes since they began trading on equity, and they are nothing new. If there isn’t a banking crisis, there will be some other reason causing the market to crash. The market has always recovered from these crashes and whilst unsettling, they are a part of investing.

Equity markets are easily affected by external market sentiments

Pros of trading on equity

You can earn income from dividends
There always are low-risk stocks that give dividends. The dividends are much better than what some other instruments can provide.

Lots of help and advice from reliable sources
In the financial sector, experts are always sharing valuable information in multiple platforms. If you reach out to the correct people or read relevant articles, that knowledge can simplify the investing process and help get you great returns.

Trading on equity has long-term growth potential
We all know about the power of compounding and the returns and dividends it yields over time. The amount is quite substantial. Use a reliable calculating machine to predict your returns, and make a robust investment plan. Investing in stocks can also diversify your portfolio, which is healthy for your larger portfolio.

You can decide how much risk you want to take
Your appetite for risk determines where and how much you should invest. Sometimes risky decisions can hit you a jackpot, but risks should always be calculated and backed by sufficient liquid amount in your bank.

Trading on equity online has additional benefits
Online trading has inducted many new players in the trading scenario due to its ease and ubiquity. This can lead to hasty decisions leading to unfavourable outcomes, but if treaded on with knowledge and patience, you can definitely profit from its swiftness of information, anytime, anywhere. If you are a new investor, educate yourself thoroughly to lessen your risk.

Product choices are plenty
Mutual funds have an array of products – right from bullish to stable companies with great dividend payouts or large companies vs. a smaller set-up. The options are so many.

Fees are low
The charges quoted by online trading platforms are merely a fraction of the costs charged by off line brokers.

Ease of trading with information and tools
Most technologically advanced trading platforms back you up with sophisticated tools and up-to-date information so you can make wise investment decisions.

You can trade anywhere, anytime
With the ubiquity of the Internet, you can take advantage of the ever-changing stock market and you can place your bids anytime, anywhere.

Trading on equity is fun, yet not without risk. Stay armed with the right knowledge for profitable returns.

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