The stock market is one investment avenue that can change your fortunes. The sky is the limit when it comes to making returns in the share market. While it gives you immense opportunity to earn profit, there are equally good chances of making losses and eroding capital if wrong trading decisions are made or if the market does not move as per your expectations.
Often people lure with the idea of intraday trading as it has huge potential to make solid returns in just one day. However, things can go the other way than expected and you can end up making losses too. In such situations, by putting a stop loss in share market you can protect your capital. This article will help you in understanding the concept of stop loss and why it is important.
Let us begin by learning what is stop loss?
What Is Stop Loss?
Stop loss can be said to be a specific price level at which an automatic order to buy or sell shares/securities is executed. Stop loss protects you from excessive losses and saves your capital for future trading by reversing or closing your positions with minimum losses. It also saves you from constant monitoring of the stock or securities price.
Let’s take an example to understand how the stop loss works. Suppose you have purchased 100 shares of Reliance Industries for intraday trade at Rs. 1400 with a stop loss of Rs. 1385. This stop loss will close your trading position or sell the 100 shares when that specific price is triggered. The stop loss here saves you from the loss that could have occurred had you held the position and the price went down drastically. So if during the trading session, the price of Reliance Industries goes below or touches Rs. 1385, your stop loss would be trigged. Thus, in a sense, the stop loss safeguards your capital and always keeps you in the game to take a new trade. Stop loss can be put manually when you place an online order or you can instruct your broker to put a stop loss if you purchase stocks on telephonic communication.
Let us now learn the benefits of putting a stop loss in the market.
Benefits of Stop Loss in Market
- Stop loss trading can protect you from excessive losses.
- Stop loss makes you a better and disciplined trader. It helps you in managing your account more efficiently.
- By putting a stop loss in share market, you are no longer required to track each and every position. If the stop loss is hit, the position will square off automatically.
- Stop loss are easy to put.
- Stop loss trading helps you in knowing your risk appetite. As a trader, you get to learn about the amount of risk you can take without impacting your financial status.
After learning the benefits of stop loss in share market, let us now learn how you can set up a stop loss order.
How to Set Up A Stop Loss Order?
Setting a stop loss order is very easy. When you place an online order to purchase or sell stocks, you will get the option to add a stop loss. You need to fill the exact amount where you want to place the stop loss. You can also place a bracket order. A bracket order is designed in such a way that a buy order will have two opposite orders, the first order is the price at which you would like to book profit on the higher side and other order is the price or stop loss where you would like to close your trade when the stock price goes down. Bracket orders for sell positions are just opposite to the buy order.
One thing is clear that by putting stop loss in place the traders specially the smaller ones can protect their capital by limiting their losses. By carefully placing the stop loss, you can become a disciplined trader and take better trades. Stop loss minimises the risks and maximises your profits. If you are new to the world of the stock market or want to learn to trade using the stop loss, you can open a demat account with IndiaNivesh Ltd. We are one of the most trusted and professional financial services group in India.
Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Stock Market Volatility – Six Ways to Handle Stock Market Volatility
A famous saying by Warren Buffett is, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” While you participate in the stock market, one thing that you cannot escape from is market swing. The stock market is one investment avenue where the fluctuation in the prices of securities can be sudden and big. Stock market volatility makes investing in the stock even more interesting and tricky. Volatility is basically changed in the Nifty or Sensex or stock prices going up or down. The extent of volatility is what matters most to the people in the stock market. Higher the movement in the stock, greater is the volatility. Therefore, it becomes very important for traders and investors to handle volatility carefully. In this article, you will learn six ways to handle stock market volatility. Six Ways To Handle Share Market Volatility Stick To Your Financial Plan You must ensure that stock market volatility does not affect your financial plans. Market volatility is for short term and your financial plans are for long term. Therefore, you must know how to manage different types of market conditions. You must always remember that volatility shall not last forever and you must stop worrying about the daily moves in the market. Stock markets are known for creating a huge wealth in the long term i.e. 10 to 15 years and short term volatility or daily volatility of stock should not make you change your financial plans. Invest on a Consistent Basis When there is stock market volatility in index and stock prices are consistently going down, it is the best time to invest. Investing on a consistent basis in the share market is the key to success in the long term. Sitting on the side-lines and waiting for the market to fall further to make a purchase at a lower price is not the right thing to do in a volatile market. This is because when markets are volatile, it is impossible to predict the next move. By continuously purchasing in all the types of markets, you can get shares of good companies at a very cheap rate. Historically, it has been seen that investment made when the markets are volatile and at lower levels has given astonishing returns to the shareholders in the long term. Focus on Quality It has been seen that during stock market volatility, quality stocks perform much better. Good stocks are less volatile because they have good brand name. Their robust business model and continuous demand for their products help them perform better even in the bear markets. Therefore, you must focus on investing in stocks of good companies. You must also remember that overexposing your portfolio to high beta mid and small caps in volatile market can go against you. Therefore, it is always advisable to take exposure in good and quality stocks when there is share market volatility. Doing Nothing It may sound strange but doing nothing when there is stock market volatility in index is one of the best strategies. This is because investors often make bad decisions at such times. They begin to churn off their portfolio and end up making huge losses. No one can time the market correctly, so doing nothing when the market turns against you is the right thing to do. Phased Approach When the markets are volatile, you never know the right level to purchase the stocks. This is because the stock price can further go down after you make a purchase. Therefore, in such stock market volatility, the phased approach is the best approach to follow. In this approach, you can keep purchasing the stocks at different lower levels in a phased manner. The rupee cost average (RCA) will help you in lowering the average price of investment and give you the best purchase price for the long term. The phased approach is also useful in averaging the price of stocks that were purchased by you at a higher price when the market was not volatile. Therefore, the phased approach will help in enhancing your returns and handling the daily volatility of stocks is a better manner. Diversify A well-diversified portfolio is always the safest way to tackle stock market volatility. Make a portfolio that is a mix of stocks, short term investments, bonds, etc. The selection of the asset class must be based on your long term financial goals, current financial situation, time period and risk-taking ability. A diversified portfolio will always have the potential to give you good returns even in an unstable market. In fact, it is advisable to always make a diversified portfolio in the long run, to safeguard your capital and earn higher returns. Other Ways To Handle Stock Market Volatility It has been seen that gold is a better performer when the markets are volatile. Gold prices tend to go up when there is global uncertainty, war or financial crisis. Gold prices also shoot up when the equity market turns volatile. During such times you can allocate 5% to 10% of your portfolio to gold. Gold will handle the market volatility well and enhance the value of your portfolio. The Bottom Line The above mentioned are six ways to handle stock market volatility. An investor in the stock market must know that volatility is a part and parcel of the markets. It is your ability to manage the risks that will determine how much return you will make in the stock market. Following a goal-based approach is one of the best strategies in the market. However, if you are new to the market or want any help during share market volatility, you can contact IndiaNivesh Ltd. We have a deep understanding of the financial market and we offer expert services with a personalised approach to create value for you.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
Tips on Investing Money in Mutual Funds
Mutual Funds are the cynosure of the financial world. And rightly so! These investment havens pool in money from multiple investors and then invest the corpus across asset categories in line with the scheme’s objective. They are a great option for retail investors who would otherwise find it difficult to get exposure to such varied investment opportunities. What makes Mutual Funds a good investment tool? · Professional Management The USP of Mutual Funds is that they are managed by a team of experts. They are equipped with the necessary resources and information to continuously monitor the markets, analyze market trends and conduct in-depth research. As a result, the fund managers can devise the best investment strategy for the investors and guide them regarding the best mutual funds to invest in. · Financial Discipline One of the common problems faced by investors is that they lack the rigour or discipline to stick to their financial resolutions. Mutual Funds take care of this issue easily. Systematic Investment Plans ensure that investors continue to invest regularly. · Flexibility Mutual Funds offer a great deal of flexibility to investors. You can choose the frequency of contribution as well as opt to increase or reduce the investment amount as per cash flows. · Affordable Systematic Investment Plan (SIP) facility makes Mutual Funds affordable to everyone. One can start mutual fund investments with just Rs. 500. That is basically the cost of one pizza these days! They are perfect for novice investors who are overwhelmed or scared of equities but still want some exposure. · Tax savings ELSS are tax-saving Mutual Funds. Investment in these mutual funds qualifies for tax deductions (till Rs. 1.5 Lakhs) as per Section 80C. Owing to their potential of higher returns and shorter lock-in period, as compared to other tax-saving alternatives, ELSS have become a preferred choice for many investors. Mutual Fund investment tips Now that you know what makes Mutual Funds a great investment tool, here are some mutual fund investment tips to help you make the most out of your hard-earned money. · Set a goal It is rightly said that “Dreams do not come true. Goals do”. The same rationale applies to investments too. Investments bring the best results when they have a purpose. So, the first step in mutual fund investments should be setting an investment goal. You should consider factors like budget, investment horizon, financial ambitions and most importantly your risk appetite. · Select the right fund type When it comes to mutual fund investments, one size does not fit all. Just because your friend is investing in a fund does not mean it will benefit you as well. Mutual Funds invest across a range of asset classes. Hence deciding which mutual fund to invest in can be slightly tricky. It is important to choose a scheme that is in sync with your needs and risk profile. For instance, if you are an experienced investor and can afford to take risks, you can easily go for equity funds. However, if you are a novice then most mutual fund tips for beginners will suggest going for debt or balanced funds. It is important to understand the risk-return relationship inherent in each asset category before making a decision. Rule of thumb being – higher the risk, higher the return! The asset allocation should be in sync with your risk appetite. Also, ask yourselves why you are investing in mutual funds. Is it to save taxes? Then ELSS Funds are your best bet. If you have a short investment horizon and want a fund type with high liquidity, then you can go with Liquid Funds. · AMC Credibility Check The right fund house can not only help you decide which mutual fund to invest in but optimize the potential of your overall portfolio. It is important to look at factors such as the credentials of the fund managers, expense ratio, components of the portfolio and AUM (Assets Under Management) of the Fund House. · Diversification is the key You should not put all your eggs in the same basket. Diversification across asset categories and investment styles is important. It helps to lower the risk quotient as it gets spread over different investments. Even if one fund underperforms, the other can compensate for it. The value of the entire portfolio is not at risk. · SIPs vs Lump-sum One of the best mutual fund tips for beginners is choose the SIP way. Especially if you are venturing into equity or equity oriented mutual funds. A SIP will allow you to spread out your investments over a longer duration of time. You will invest at different points in the market cycle and hence even out the associated risk. Also, the power of rupee-cost averaging in SIPs helps to generate higher returns in the long-term. · KYC KYC has become a necessity these days. Government of India has mandated KYC for most of the financial transactions including mutual fund investments. So, ensure that you have documents such as PAN Card, valid address proof, etc. before you venture into mutual fund investments. · Have a long-term view Mutual Funds are like a committed relationship and not a one-night stand. You need to remain invested for a longer duration in order to get the best rewards. Especially in the case of equity funds. This is because markets tend to be volatile in the short run but tend to move up in the long-term. The best combination is to invest in a mix of debt and equity to get best of both the worlds. Debt Funds would help to lower the overall risk of the portfolio and could help meet emergency fund requirements in the short run. While your equity funds work on wealth appreciation in the long run. · Ask the Expert Just like KBC, Mutual Funds also come with a helpline – Ask the Expert! There are so many options available in Mutual Funds. It can become rather overwhelming for a new investor to select the right mutual fund to invest in. A professional expert will not only help to select the right funds and schemes but will also constantly monitor the market on your behalf. One such expert is IndiaNivesh. They offer a wide variety of financial solutions related to broking and distribution, strategic investments, institutional equities, corporate advisory, investment banking and private wealth management. The team at IndiaNivesh has a combined experience of more than 300 years. With their cutting-edge technological and research capabilities, competent team and “client-first” approach, you can be rest assured that you are in safe hands. Final Words Now that the mystery is solved about how you can select the best mutual funds to invest in, what are you waiting for? Especially when you know that you have a guide like IndiaNivesh available at the click of a button.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing."
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