Why trading in stock market is not appropriate for all

Kripananda ChidambaramFintotal.com

Lakhs of people attempt stock trading with the expectation to earn easy and quick money. Salaried people are desperately looking for second line income to manage their never ending expenses and get in to stock trading thinking their end of misery lies there.

Another set of people hear and read about the kind of wealth stock market has created and plunge in to it to make their own story.

Yes, investing in stocks can help you become wealthy but trading in stocks cannot. You may be wondering why this is contradicting. You need to pay attention to the two words ‘investing’ and ‘trading’. Investing and trading in stocks are two different spheres of the game.

Trading is basically buying and selling of stocks frequently for small gain. The trader usually repeatedly buys a stock and holds is for very short duration; hour, day, week, month or for a year. Investing is the exact opposite to trading. Here you buy a stock and hold it for a very long time and sell it for huge gains.

Related stories

Kripananda Chidambaram

Director |Fintotal.com

• 
  Is financial focused MF a good investment bet?
• 
  Decoding the income tax rules for NRIs
• 
  Costs of breaking your financial commitments

We will discuss few points as to why trading is not appropriate for all:

• You can generate income in stocks only if you can dedicate full time to it. Professional traders are full time into the market and do this day in and day out. Since salaried employees or non professional traders already have a job, it is quite obvious that they cannot give full time to stock trading. Hence stock trading is not an appropriate option for the salaried employees.
• Trading is akin to gambling. It is like buying a lottery, you may win in some bets and lose in others. Net-net you will not make any money. There is extreme movement of stock prices on a daily basis and in most cases there is no rational behind this behavior. It is difficult to predict whether the price will go up or down and there is no established system or formula to define the movement of prices. So for a non professional trader stock investing is not any different from gambling.
• Only your broker and tax department benefit from your trading expedition. Every time you buy a stock you pay brokerage and tax. And every time you sell, even on loss you pay brokerage and tax. That is the exact reason why you will see brokers hounding you with stock calls.
• There are many brokers who will lend money for stock trading. You should never ever fall for the bait as invariably you will get in to a debt trap. You may want to cover up one of your earlier losses and hence you may get in to one big bet with the borrowed money. But please beware, for sure you will lose money in this as well and you will end up being in huge debts.
• Trading in stocks will make you an emotional wreck. There is too much of criss-crossing between excitement and disappointment. Every time you see the price going up you are happy but suddenly and without any warning the prices crashes putting you into agony and anxiety. Non professional traders go through a lot of emotional imbalance and they end up affecting their relationships and family.