How to effectively save on your brokerage charges?
Brokerage charges might seem to represent a very small and insignificant part of the entire investing exercise. However, they can add up over a period of time. A little bit of time and effort to take a closer look at the details here can save you some amounts which can amount to a significant figure over several years.
Here is a look at some ways in which this can be achieved.
Selecting the right broker
Do not go and open an account with the first stock broker you come across. Always check the services and offerings as well as the cost of the various brokerage houses before you make your decision. This can lead to savings because there is quite a bit of difference between the charges that are levied by different brokerages.
Nature of service
Your experience of the equity markets and knowledge will determine the kind of services that you require from your stock broker. There are options for advisory services or low cost options that can be chosen. It is important to consider the value for the cost incurred and then make a choice as the end result should reflect this fact.
The services that are offered by your broker should be known because they can add to the overall value that is generated. Adequate research will help you to invest better and undertake only relevant transactions helping you save brokerage cost in the long run. This is essential so that your investing is being done in a cost effective manner.
The broker is being paid a charge for the transactions that are done with the entity and your money is being handled through the broker. It is essential that the process of money transfer and other details are handled smoothly without any additional cost or charges coming into play. This will ensure that there is confidence in the way the details are being handled.
The brokerage percentage is not the only figure that determines the amount that you actually end up paying. There are a lot of other charges like demat charges and other costs that are added on. On the face of it the brokerage charges might look to be less but all the details needs to be checked to see the actual and final cost that is going to be borne by you as an investor. This will help you to choose one of the options that suit your requirements in terms of service as well as offering good low cost services.
Investors are often wary about losses they could make while trading in the stock market. Everyone wants to make money, but nobody wants to lose it.
However, stock markets do not function in one direction. For someone to make money, somebody has to lose it. A market is a meeting place of expectations of buyers and sellers. If the demand is higher than supply, prices are higher. If the supply is higher than the demand, prices fall.
Here are pointers that could help dealing with fear and anxiety:
Day trading: Stock market trading is a zero sum game. There are days when you make good money and there are days when you lose money. Like gambling, day trading is very addictive too. You should prepare your mind for losses. Ideally, you should day trade for the fun bit. This means you should set aside money you can afford to lose every time you trade.
Investment losses: So you bought quality stocks for the long-term, but picked them up at the peak of the stock market rally? Most retail investors tend to go with the herd. When everyone is buying, retail investors are typically the last to enter the stock market. The idea here is not to panic. Instead, you could use the fall in the stock market to buy more of those shares at a low price. This would bring down the average cost of purchase you made. For example, if you invested in 1000 shares worth $1,00,000 at the peak of the stock market, your average price per share was $100. Buying further during a fall, could bring the average price to $80. So, you can make more profits in future.
Derivatives: You bet on index or stock futures and the market went against you? Derivatives are created for speculation. They derive their value from the underlying security that is a company share. If you want to bet on prospects of a companyâ€™s share, you should certainly use individual stock options and not stock futures. Unlike options, futures come with an obligation to undertake the trade in future. Traders tend to use futures as a hedge against their position in the equity cash market. However, a small investor should not follow traders who have higher stakes in the stock market. It is better to bet on the price trend by using stock options. The only risk you run is of losing the option price that is a fraction of the actual share price.
Value: A low absolute share price does not make a stock cheap. Nor does a high absolute price make it an expensive proposition. If you have invested in a high growth sector and you hold that stock for three to five years, you will make good money. This is because a high growth would bring in high revenue and profitability to the company. Share prices tend to follow the trend in earnings per share â€” the companyâ€™s net profit per equity share. However, it is important to assess the growth prospect of a company in comparison to the overall growth in the sector. You should never buy a stock because the share price looks cheap. The share could be priced at $10 but the company may not be making even 10 cents per share in profit.