Risks Involved in Stock Trading

Risks Involved in Stock Trading

Stock trading is a way to earn passive income apart from your monthly salary income. But it is also very risky and even you can lose your savings. Most of the people have “Burnt their fingers” by doing aggressive trading and “speculative trading”. So you need to be more careful while doing stock trading.

There are various circumstances where a trader loses most of his money.

Day Trading:

This type of trading involves buying or selling stocks within the closing of the same day. There is no need to take delivery of the stocks in our demat account and also there is no need to pay the whole amount for the stocks bought. This is because if you have for example Rs 25,000 in your account for buying stocks, then the brokerage firm which we are using give us extra exposure of Rs 1.5 lakhs (depending on the brokerage firm) and you can buy stocks for the 1.5 lakhs, but in case if you lose money, your loss should not exceed the exact amount Rs 25,000 which you have in your account.

This gives a opportunity for the traders to take more exposure and buy more stocks beyond his capacity. Also the fluctuations in the share prices during the intra day will be very high and the chance of losing the money is high. Even if you do not want to sell the share in more loss, the shares will be sold at the day closing price and the loss will be booked. In case of delivery based share trading, we can keep the shares in our demat account, in case if we have the capacity to hold the shares and can sell it when we feel to sell with less loss.

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