Gold is so popular in India that 11 out of 10 people in the country are interested in owning it. That statistic may not be true but you get the drift. This piece of yellow metal has captivated a billion people for thousands of years. Other commodities like agricultural products, energy and livestock don’t hold the same degree of fascination. That said, the commodities market is a popular avenue among investors in the country.
But if you are newcomer to commodity trading, you need to be careful of avoiding some of the common mistakes people make. It’s always better to learn from experience, even if they are not yours. So, let’s look at a few banana skins you should look to avoid in the field of commodity trading when you set out on the road to commodities investing.
1) Investing for the short term
Gold is a very valuable asset among Indian investors for short term investments. However, to avoid mistakes to avoid while investing in gold, don’t invest with unrealistic expectations. Hopes of a 50% appreciation in gold price in six months or a year can leave you disappointed. When you invest in gold for short term investments, it is better to have a long term approach. This can help you ride the volatility in the short term.
In addition, be careful not to depend too much on gold during short-term financial requirements. In case you liquidate your investment at a short notice, your returns may be much lesser than expected.
2) Not maintaining a stop loss
When it comes to investments, everyone makes mistakes. But the good investor knows when to exit an investment at the right moment and minimize his losses. It is well known among investors that commodity trading comes with a certain amount of risk. A wrong investment can result in big losses for the investor if he is not careful. That’s why it is important to maintain a stop loss to personally protect your trading positions.
3) Going big right from the beginning
Many novice traders make the mistake of going big on their first investment itself. This can be a risky proposition in commodity trading. If you are new to the market, here’s one of the most important commodity trading tips -- it is best to begin your journey with a small sum of money. This way, you protect your capital against unnecessary losses. Over time, you can improve your trading record by expanding your knowledge on global events and price fluctuations in the market. With respect to gold, you can invest in even 1 gm through gold ETFs online. This is another one of the crucial good investment tips to begin your investment journey into commodities.
4) Lack of diversification
Never invest your entire capital in a single commodity. For example, you might find the metal sector very attractive or perhaps the energy sector shows great potential for high returns in the near future. Regardless, it is better to allocate your capital into different assets to minimize your losses in case a single commodity or sector falls unexpectedly.
To sum up Commodity trading offers great opportunities for good returns. However, it is important to remain calm and patient when you invest in commodities. When compared to investment in the stock market, commodities futures contracts provide investors with a greater degree of investment flexibility. That’s why, it is important to be aware of your personal risk-reward ratio and invest accordingly.
It is important to know that not all commodities are equally risky. To ensure your te right pic, you may want to gauge the amount of risk suited to your profile. This is crucial, because commodities undergo extraordinary price movement on the slightest hearsay of critical news.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
How to pick stocks
Picking the right stocks is the key to success. But there lies the challenge. There isn’t any single theory that can be applied when it comes to understanding how to pick stocks. There isn’t any definitive science that you can stick to. What there is a plethora of factors that need to be taken into account before putting your hard-earned money in a company stock. That’s because analysing the various factors can help you make the right pick. So, let’s go through the various factors you need to take into account before knowing how to pick good stocks in Indian market and optimising your investment:Company fundamentals: To discern how to pick stocks, you would have to do some research and find companies that have strong fundamentals. Analyse the financials of the company based on some key financial ratios. Earnings per Share (EPS): This indicates post-tax profits of the company on per share basis. For instance, increasing EPS indicates that the earning power of the company is on the rise. Dividend Yield: Consider this aspect if the primary objective of your investment is to know how to pick stocks for long term and earn a steady income. It indicates percentage of return that can be expected in the form of dividend on your investment at the current market price. An increasing dividend yield indicates that the investment has potential to provide regular stream of income. Price to Earnings (P/E) ratio: This is calculated by dividing the current market price of the company’s stock by its earnings per share (EPS). It shows how much the market is willing to pay for the earning prospects of the company. If P/E ratio is high, it means the stock is overpriced. If P/E ratio is low, it means that the company has a good growth potential. However, this strategy holds water if you compare the stock with its peer company. Price to Book (P/B) ratio: This ratio is calculated by dividing the current market price of the company’s stock by its book value per share. High P/B ratio indicates that the market value is more than the book value. Lower P/B ratio indicates that the company is undervalued. It’s one of the ways to evaluate banking stocks. Thus, companies with increasing earnings per share, increasing dividend yield, lower price to earnings ratio (P/E) and lower price to book ratio (P/B) are considered healthy. Basically, these records show past performance of company. Based on the fundamentals, you can shortlist companies that are worth investing. However, you can further distil your stock choices by looking at the following factors: ✓ Nature of business: A company’s business model can give you an insight into its future prospects. It’s also better to invest in businesses that you understand. Knowing the nature of business and its model can help you take better decisions. ✓ Company’s management: Details of a company’s promoters and their background are easily available on the internet. Look for a management that is stable and experienced. These traits can be a good indicator of the company’s future potential that can help you understand how to pick stocks for day trading. ✓ Stock valuation: Picking the right stock at the right price is the key. It’s important to analyse whether the price of the particular stock is fair or expensive. So, do due diligence before you buy the stock. Make sure you aren’t paying a premium. In a nutshell, informed decision is the key to knowing how to pick the best stocks for successful investing. Although there is no Bible to guide you, poring over the company’s activities can help you gauge its future prowess.Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
How to Open Demat Account – Process, Charges & Advantages
How to open a demat account?Having a demat account is one of the pre-requisites of trading in the stock market. Prior to 1997, securities were held in the physical form i.e. in the form of share certificates. On buying shares, investors were given the contract note along with the share certificates and the transfer deed by the broker. Investors would then send the share certificates and transfer form to the company’s registrars. On receiving and successfully verifying the certificates and transfer form, the registrar would include investor’s name in the register of shareholders and issue them fresh share certificates. However, this process often involved issues such as loss or theft of share certificate, difficulty in storing and maintaining share certificate, bad deliveries, signature mismatch, etc. With the introduction of dematerialisation, these securities are now held in the demat account. A demat account not only saves from the above-mentioned hassles but also makes the entire process of trading and investing very quick and easy. It is important to open demat account if you are willing to trade or invest in the stock market. In fact, according to a recent report of Economic Times, approximately 3.76 million demat accounts were opened only in the year 2017-18. If you too are willing to gain from the potential of the stock market, you can do so by opening a demat account online. This article will walk you through the entire process of how to open demat account. But before we understand the demat account opening procedure, let us first understand the meaning of the demat account. What is a demat account? The word demat is an abbreviation of word dematerialisation. A demat account is just like your bank account. In fact, it operates also just like the bank account. Just like you hold cash balance in your bank account, you hold shares and other securities that you own in your demat account. These are held in dematerialised electronic form. These days all the share purchases and sales are done only through a demat account in non-physical form. Now that you know what is a demat account, let us learn the free demat account opening procedure. How to open demat account online? Step 1In order to open demat account, you have to reach a depository participant with whom you wish to open an account. The depository participant is an agent of the depository (i.e. CDSL - Central Depository Services Limited or NSDL - National Securities Depository Limited). The depository participant could be a broker, bank or other financial institution offering the service. You may find the list of depository participants on the official website of the depositories. Even though you open demat account with the depository participant, the custody of your actual shares will be held with the depositories (CDSL or NSDL) which ensures enhanced safety and security of your holding. Step 2Once you have finalised your depository participant, you need to fill up an account opening form with them. Along with the form, you also need to submit the photocopies of your KYC (Know your Client) documents for proof of identity (which includes PAN card, voter's ID, driving license, passport, IT returns, and other government issued ID cards) and proof of address (which includes telephone bill, electricity bill, voter’s ID, bank passbook or bank statement, etc.). In addition to the above-mentioned documents required for a demat account, you will be required to furnish the copies of your passport-sized photographs and your PAN card. Do not forget to keep the original documents for verification purpose. Step 3At this stage, you will be given a copy of the Depository Participant-Investor agreement which specifies the rules, regulations, rights and obligations regarding the agreement. It will also contain the schedule of charges that you are supposed to incur in the future. It is advisable to carefully read the agreement and understand the terms of the agreement before signing it. Step 4In the fourth step, an in-person verification would be carried out by the staff of the depository participant in order to ascertain the truthfulness of the details provided by you in the account opening form. These days, a lot of brokers also encourage in-person verification over the webcam which makes the process much easier. Step 5Once all the documents are verified, the depository participant will open an account and give you the account number or client ID, also known as a beneficial owner identification number (BO ID). This unique number will be used for all future transactions, IPO applications, etc. With the above-mentioned steps, you will be able to easily open demat account online. Once your demat account is operational, all the share purchases will be credited to this account and all the shares sold will be debited from this account. However, you must know that a demat account can only hold shares and securities in custody and therefore you will need a trading account in order to transact i.e. buy and sell shares and securities. Few things to know about the demat account • You can have multiple demat accounts if you wish to. • You can open a demat account with zero balance of shares as it does not require you to maintain any minimum balance. • It is not mandatory to open a depository participant account with your stock broker. You may choose to open an account with any depository participant as per your convenience. • It is advised that you update your bank account details and any change in your postal address to the depository participant as you will be sent refunds, dividends, interest, etc. in your bank account and all the correspondences will be sent to the postal address mentioned in your demat account. Charges for opening demat account Most of the depository participants do not charge an account opening fee for a demat account. However, there are other demat account charges which an investor has to bear. These include annual maintenance fee for maintenance of the account, transaction fees for selling shares from the account on a monthly basis, fee for dematerialisation and rematerialisation of securities, etc. The demat account charges vary from one depository participant to others. Some may charge a flat fee on every transaction while others may charge a fee based on the type of transaction (i.e. buying or selling). You may find the demat account charges of various depository participants on the websites of the depositories. All you have to do is compare and find out the depository participant that best suits your needs. Now that you are aware of the entire process of how to open demat account, you must also be aware of the advantages and features of a demat account. Advantages of opening a demat account • The biggest advantage of opening a demat account is that it saves from the hassles of theft of certificates, loss of certificates in transit, issuing duplicate certificates, etc. Unlike paper certificates, dematerialised shares and securities do not carry any storage risk and cannot be stolen, forged or damaged. • In case of change of address, you are no longer required to intimate and write separately to the registrar for each company whose shares you own. With the demat account, you just have to intimate your depository participant once. • Unlike trading with physical certificates, the demat account does not have a requirement of minimum lot size which encourages even small investors to participate in the equity markets. • It involves minimum paperwork as shares and securities are held in electronic form.• Trading in demat account saves time and involves quick settlement.• It is a secure and easy way of transacting in the stock market. • You can easily keep a track of all your holdings in your demat account. With numerous advantages of a demat account, more and more people are opening their demat account and making their stock trading a seamless experience. You too can open a demat account in a few simple steps with a renowned broker like IndiaNivesh. So, open your demat account now and enjoy a hassle-free trading experience. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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