- Date : 03/10/2020
- Read: 4 mins
Learn about the seven common trading online mistakes committed by new traders and investors while selecting an online stockbroker.
Traders and investors have warmed up to the idea of online trading in the stock markets over the last few years. Online trading is quite convenient since the only requirements are an online banking facility along with decent internet speed. Mobile applications have made it even easier to trade online.
The most important element of online trading is the online stockbroker. Picking the right online stock broker is most important. Still, investors and traders end up making some common mistakes while selecting an online stockbroker.
Here are seven mistakes investors should avoid while picking an online stockbroker:
1. Ignoring registrations and licenses
Following all compliances are critical for online stock brokerages. Some of these compliances are related to bookkeeping, marketing, KYC norms etc. Online brokers must also have licenses from various authorities and regulators. A reputed online brokerage which follows all the necessary compliances would state that it is a SEBI registered brokerage. SEBI (Securities Exchange Board of India) is the regulatory authority for the Indian stock market. One must check whether an online broker is SEBI registered. If the online stock brokerage doesn’t have the necessary credibility, then it shouldn’t be touched with even a barge pole.
2. Picking on the basis of cheapest commissions
This is the most common beginner trading mistake. Over the last few years, several discount brokerages have come up. These discount brokerages charge commissions which are substantially low as compared to traditional brokerages. Therefore, traders and investors can save a lot of money instead of spending them on commissions.
However, one should be careful about selecting online brokerages only on the basis of commissions. One should evaluate other aspects of the online brokerage’s offerings such as quality of customer service, the robustness of the platform, the credibility of the management etc.
3. Picking only one online broker
It is advisable not to be dependent on only one online stock market broker, especially if one is planning to trade as well as invest. Putting all your eggs in one basket is among the top trading online mistakes. One should use two separate online brokers for trading and investing. Even if one is only investing or trading, it is recommended that one has two separate online brokerages. Certain online brokerages end up being slow or unable to perform on days of substantial market volatility.
4. Ignoring reviews
Investors and traders who are choosing an online stock broker must not only spend time researching about online brokers but also interact with other traders and investors to get their feedback. It would be excellent if one can speak to customers of an online brokerage to get first-hand information.
Certain aspects which one might have missed while evaluating the online brokerage could be highlighted by its existing customers or other traders and investors.
5. Not making full use of the brokerage’s services
New traders and investors often use the brokerage platform only to trade in shares. However, a new age online brokerage may offer a variety of services apart from enabling you to trade in stocks. You could use the same platform to invest in different financial instruments such as mutual funds, commodities, futures etc. These online brokerages would also be providing a lot of useful content for free via blog articles or videos. In most cases, you can access them for free.
Many large brokerage firms also have strong internal research and advisory team. They periodically send investment literature and issue calls regarding stock market investments. For HNI customers many brokerage firms provide bespoke investing services as well.
6. Following all recommendations
Online brokerages would keep offering recommendations to their customers. However, a trader or an investor must buy or sell shares only after conducting their own research and not by blindly trusting the recommendations offered by the brokerage.
7. Being impatient
One of the topmost mistakes investors should avoid is being impatient. Once the online brokerage has been selected, there could be teething issues initially. This may frustrate the trader and this may prod them to consider some other broker. However, one needs to be patient. Unless the online brokerage had committed some major error or is consistently making mistakes, the trader must be patient with the online brokerage.
It would be helpful to treat this article as a checklist if one is planning to shortlist an online stock market brokerage. Here are 5 rules you must follow when buying stocks.