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Why Retail Investors Lose Money In Stock Market?

SEBI (The Securities and Exchange Board of India) defines retail investors as those who bid for not more than Rs.2 Lakh while applying for an IPO. If an investor buys or holds securities worth less than or equal to Rs.2 Lakh he is considered a retail investor.

A retail investor purchases the shares by personal trading account from the market and often the value of the purchase order is comparatively less than the institutional investors.

Retail Investors are not professional investors and have a small purchasing power as compared to institutional investors. They open a Demat account with a SEBI registered stockbroker and trade only in stock markets.

To Start Investing in The Stock Market

 

Retail investors need to open a Demat account along with a trading account to start investing in the stock market. The Demat account helps in storing the financial securities of an investor. While the Trading account helps in placing a buy or a sell order to an investor.

As technology advances, investing in the stock market becomes easier. Now the technologically advanced stockbrokers prefer opening Demat accounts of their patrons digitally.

Let us find out how to open Demat account online. Also, the documents required for opening a Demat account.

  • An investor needs to have Proof of Identity (Eg.: Pan Card, Driving License)
  • Along with Identity proof, the investor also requires to have Proof of Address (Eg.; Adhaar card, voter Id).
  • Income Proof, that is salary slips in case of salaried personnel and ITR in case of self-employed investors is required to open a Demat account.
  • A canceled cheque or bank statement is also required for Proof of a bank account.

These are the documents required for opening a Demat account. These are to be uploaded on the stockbrokers’ website and after the verification of the documents the Demat account is opened digitally. The process does not require exchanging any hard copy.  You only need soft copies of the above.

The rights of the retail investors are protected by law and an independent organization is set up to regulate the financial markets. SEBI frames the laws to protect retail investors from any frauds and miss happenings of the market.

There are multiple reasons for retail investors to lose money in the stock market, let us discuss some of them.

Reasons for Retail Investors to Lose Money

 

●    Research:

Well, research about the industry before investing is the backbone of successful investing. The retail investors do not research well enough and mostly the data points collected by them are not relevant. However, these are the general mistakes made by any investor;

  • They do not study the fundamentals of the company.
  • It is difficult for some retail investors to look at the historical data.
  • Market value and intrinsic values are often dismissed by retail investors.

It is very often that retail investors rely on the recommendations more than the data of any stock. Investing is about giving time and putting the hard-earned money to use, so it’s advisable to always know the “what” and “why” of any company before investing.

 

Also Read: How to Trade with the Parabolic SAR Indicator

 

●    Get Rich Quick Schemes:

 

Usually, the retail investors think and assume that the stock market is a get-rich-quick scheme. That’s when most retail investors lose money.

It is a trend generally seen that a retail investor starts investing only after coming across wealthy day traders.

Therefore, when Retail investors try to imitate a day trader they tend to lose money.

Thus retail investors should ignore “get rich quick” pitches and focus on the long-term growth of their capital invested.

●    Emotions Taking Over Decision Making

 

Emotion-based decisions do not work in the financial markets. It is always the data and logic that should drive the investment decisions and not emotions.

But in the case of retail investors, they often fail to understand the market volatility and exit/enter the position accordingly.  Wrong decisions based on emotions often lead to unwanted results.

Final Thoughts

There is no correct formula to succeed in investing, there are certain strategies that are used to be followed. A successful investor requires patience and discipline after entering the financial markets. A retail investor can start with assessing the above points and sticking to the game plan, panic selling never works.        

 

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