5 Things to Consider for New Investors

So you just opened your trading cum demat account and have received your trading toolkit! Are you all set to start trading? Not exactly! Here are five things you need to do before you start using your trading account full time. This will act as a toolkit for you to give you confidence to begin trading.

1) Ensure to use a secured trading environment

This may look like a mundane task but it is very important because this is how you are going to interface with your trading account. You can use the PC to access Online Trading account or your smart phone to run the mobile app. The most important thing is security. If you are using a PC, let it be dedicated to trading activity and protected anti-virus and anti-malware. Keep your trading account and demat account passwords confidential and don’t write them down. In case you are using the mobile app, avoid using public wi-fi at malls or airports. Use of trading account through a cyber café must be strictly avoided on safety considerations.

2) Activate your trading account and change password

Once your trading environment is set, the next step is to use the password and user name sent to you to activate your trading cum demat account. Once you activate the trading account, change the password for greater confidentiality. Don’t let the password be obvious references like your name or date of birth. Ensure that the password strength is classified as “Strong or Very Strong”. Your trading account is now ready to be funded and used.

3) Go through the fine print of the member agreement

It is said that the devil lies in the detail and it is no different when it comes to trading accounts. Firstly, verify the brokerage rates for equity, F&O and currency trades as specified in the member agreement. Secondly, verify your rights and obligations under various conditions and whether there are any limitations imposed. Thirdly, when you are giving a power of attorney (POA), you must ensure that you know the risks and have taken efforts to protect your interests. These must be clear before you start trading.

4) Create your trading and investment plan

It is not a great idea to directly jump into using your trading account without a plan in place. Have a short term trading plan and also a long term investment plan. For trading, you must document how much risk you are willing to take per day, per position and overall. Your plan must also include how you will use stop losses and profit targets to manage risk. The investment plan should include finer points like your holding period, downside risk, willingness to double up positions, hedging strategies etc. The trading plan must be documented before you start operating the trading account.

5) Start with small trades to understand the process flow

Now you come to the last stage, which is putting your trading plan into action. Start with small trades. Don’t jump into F&O trading right away. Test the waters with small cash market trades. You must be clear on how to verify and modify the trades in the order book, how to cross check the trade book with the ledger and finally how to reconcile the contract notes with your demat account. Ensure that the demat credit happens latest by T+2 and the bank credit happens latest by T+3 date. You must increase commitments only after you are comfortable with the trading and demat process flow.

Receiving the trading toolkit is not an invitation to jump into trading. Adopt a more calibrated approach and put the bells and whistles in place first.