Contrary to popular perception, online trading is a serious business, it’s certainly not gambling. We do realize that trading does seem like gambling on so many occasions; especially when you buy a stock based on a recommendation given by an expert on CNBC, only to see the company tank a few weeks later.
Can you lose money from online trading?
Yes, there is always a risk of losing your money when you participate in online trading. So, how is trading in the stock market different from gambling? After you, you could lose money trading certain stocking just as easily as losing money in a Las Vegas casino. Ask traders who put their money on Enron or WorldCom!
Even so, it’s rare for a stock to go to zero in a matter of days – it’s rare for online traders to lose ALL of their money even on a single losing trade. In gambling, of course, it’s all or nothing – you win big or you end up losing everything.
Why online trading is a serious business
Indeed, online stock trading is a serious business. As a trader or investor, you are essentially betting on the future of a company. There’s the company’s track record readily available to you which can help you with your research.
When you trade an index or trade in many stocks at once and have a diverse portfolio, you are just as much betting on a country’s economic future as on the companies themselves. That’s why inflation reports, jobs data, fall in oil prices or forecasts of a possible drought have such a huge impact on the stock market.
How is gambling different?
Gambling is different. Research or education is no good to you at gambling, luck is the only factor that counts. When you gamble at a casino, the house has all the advantage. You might be able to beat the house on occasions, but you will only end up losing money if you gamble over a period of time.
Gambling is a wealth destroyer. Online trading is a wealth creator – it’s a career and a serious business. Online trading is not about selecting stocks at random, it’s about educating yourself on how the companies are valued and operate, analyzing the technical charts and the data, studying the available market information and much more.
Dealing with setbacks as an online trader
True, there will be times when, despite your hard work, you will end up losing money on a stock. Out of frustration, you will be tempted to categorize trading as nothing more than gambling – that is understandable. But over time, as you continue trading in stocks, you will gain experience and learn the ins and outs of the process and will be able to make a profitable career out of it.
Be realistic about your expectations
You will certainly make money in the long run by trading online. But you must respect the profession and treat it seriously as a business. Don’t get tempted by the stories of instant riches – it’s not easy to make money in the stock market and if you think you’re going to be super-successful from day one as a trader, you would only be setting yourself up for disappointment. Be realistic about your expectations.
Building your online trading skills
Online trading is all about planning ahead and thinking strategically, not impulsively. People who trade based on instinct won’t last in the profession for long. Practice your stock trading skills first when you are just starting out.
There are many stock market apps that simulate the working of real stock market and allow you to get your feet wet, learn trading faster and analyse your mistakes without risking any money. You should practice for at least 3 months before starting with real online stock trading with real money.
Education is critical for a trader. You must pick up as much information as possible from books on technical analysis, trading fundamentals, value investing, money management, read financial papers and magazines, participate in stock market forums and online discussions, watch business channels, visit business and finance websites and blogs, talk to other traders and ask for their tips and advice.
Raghav Hegde, Bangalore
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