How to Trade?

In the previous chapters, we have seen about investing and trading. To enter the stock market, the first and foremost important principle is approaching a registered stock broker to open a trading account. Your trading account is just like a “PORTKEY” which will take you to the dimension of The Stock Market. Once you have opened a trading account, you will be provided with a “User ID” and “Password” to login into the “Trading Terminal” to start your trading.

Trading Terminal gives you access to buy/sell stocks of a company. Trading terminals’ names might differ among stock brokers, but all serve the same purpose. Say, for example, Zerodha’s trading terminal is named “Kite”, Fortune Capital Services’ trading platform is “FlatTrade”, and Master Trust’s terminal is “MasterSwift”. Nowadays, almost all brokers provide web-based and mobile-based applications for trading. Your broker will guide you very well in the account opening process.

After the login process is completed, you can add the scripts you want to trade. Almost all the terminals look similar in their interface and features.

Let’s get into some real trading here. The image below is the web application of FlatTrade. On the right side, you will find the “Dashboard”, and on the left side window “Watchlist” will be available. You can see the available margin in the dashboard section. In the below account, the available margin is around ₹1000/-.

Adding a Symbol :

To add symbols for trading, type the name of the stocks in the left-side search bar. You will see a drop-down menu with all the segments of that particular stock. Add stocks as per your need and you can name your watch list too.

Buying a Stock :

Before entering into trading, make sure you have enough funds in your trading account to take a particular trade. You can add funds through the “Add Funds” button in the dashboard. TataSteel has been added for trading. We are going to “BUY 5 quantities” of TataSteel stock in equities. By clicking the green “B” button next to the stock, the buy window will pop up.

In the buy window, enter quantity as 5. This order is a “Market order” (In the upcoming blogs, we will see about order types). Click the “BUY” button. Now the order has been placed.

In the below image, you can see the positions of this account. We have now 5 quantities of TataSteel. Its average buy price is ₹118.40. MTM(Mark to Market) is a process of calculating the difference between the stock’s entry price and the stock’s current market price. So MTM for this trade is 1.25. MTM varies whenever there is a change in the current market price or LTP.

Selling the Stock :

Sell generally refers to the act of exiting a long position in an asset or security. In the previous buy order, we have taken a long position on TataSteel. To exit from the long position, we need to sell the stock. The price difference between the Sell Price and Buy Price determines your “Profit/Loss”. If your sell price is higher than your buy price, you are in a “Profit”. If your sell price is lower, your net trade is in “Loss”. To invoke a sell order form, click the “S” button next to the script. A sell window will pop up.

Enter the quantities as 5 and select the order type. Here we are placing a “Market Order“. After entering all those details, click the “Sell” button. Now the order has been placed. We have sold our positions.

Stock selected: TataSteel

Quantity: 5

Order Type: Market Order

Sell Price: ₹118.60

Orders Window :

The orders window will give you all the details of your orders. In the below-given image, you find two completed orders. One for buy order and another for sell order. In the order window, both orders’ statuses are completed. If the order is not executed, the status will be Pending. The order window gives you detailed confirmation for all your trades.

Profit/Loss calculation :

In total, we purchased 5 quantities of TataStell script at an average buy price of ₹118.40. We sold 5 quantities of the same stock at an average price of ₹118.60. To calculate our Profit/Loss, we need to subtract the above two. ₹118.60 – ₹118.40 = ₹0.20. It should be multiplied by 5, as we have purchased 5 quantities. The final profit we made is ₹0.20*5 = ₹1. If the sell price is higher than the buy price, it is a profitable trade. If the selling price is lower than the buy price, the net position is in a loss.

In the below positions window, you can see the trade details. We made a Profit of ₹1. As we sold all the quantities, our net quantity becomes “0” now.

Things to note down before taking a trade :

• Do Paper Trading: Paper trading is simulated trading or practice trading. It allows you to buy or sell stocks, options, ETFs, and more, without using actual cash. It’s typically used to practice investing strategies before deploying them with real money. As real money is not employed, there is no role for emotions here. But keep in mind that, always do paper trading with utmost care as Paper Trading will give you enough experience and knowledge in various strategies.

• Diversify your stocks: Overexposure to one stock or industry can quickly lead to losses. Diversifying your portfolio for trading is well-regarded amongst the most successful traders as it is the best way to reduce the risk factor. The most important diversification is sectoral diversification, i.e. the stocks should be from different sectors of the economy. Simply don’t put all the eggs in one basket.

• Using Stop Loss: There is no such thing as only Profit in trading. Always ready to face your losses. You can control your losses by using the StopLoss order. As a trader, you should be very much concerned about protecting your capital. One of the best ways to protect your capital is by using a StopLoss order.

• Eliminating Emotions: Fear and Greed are the worst enemies in Trading. If you let that greed enter you when you make a profit, then you are in real trouble. Likewise, whenever you make a loss accept your loss and don’t let that fear engulf you. Profit and Loss are parts of Trading. Devise a wise trading plan to limit your losses and make a consistent profit.

• Consistency is the key: Consistency is the critical driver for success. Trading requires a long-term commitment from you and involves sustained effort in mastering Trading repeatedly until you achieve your goals.