Advantages of trading
Relatively good returns:
One of the advantages of trading is that a disciplined trader with analytical skills has the potential to earn a relatively good return and that too in a short time. This makes the profession lucrative, especially if you are able to manage the risk efficiently. Stock trading becomes even more attractive with low interest rates and a high inflation regime.
Interviews with some of the Market Wizards, as they are called in trading, featured in Jack Schwager’s series of books titled “Market Wizards”, reveal that the amounts of money made in trading by professional traders and trading firms are as high as one can imagine.
High liqudity:
Stock markets provide liquidity which is unparalleled when compared to other asset classes, such as real estate. In other words, getting out of the market is easy and without much impact cost. This is also one of the advantages of trading as it allows you to put surplus funds to use, and it is more profitable than keeping the money lying in savings accounts.
Regulatory surveillance:
Thanks to the regulatory reforms in recent years, one of the main disadvantages of trading related to frequent payment defaults by brokers, is now a thing of the past. The strict and alert surveillance system of the Securities and Exchange Board of India (SEBI) has thwarted the possibility of any major scams or malfunctioning in the system. Margin and net worth requirements minimise the risk of defaults at the brokers’ end. The recent rules that have reduced overall intraday margins in the Futures and Options segment, although they may look as hurting traders in the short term, are good long-term measures to reduce overall risk and the possibility of financial instability in the system by way of trader bankruptcies or trader firm/broker defaults.
High transparency:
Online trading, as compared to the ring-based trading system, has introduced transparency in trading and pricing. In this system, you can place ‘buy’ and ‘sell’ orders directly (without the intervention of your brokers’ representatives), decide price limits, put a stop loss (and keep changing it), know the status of the order and stay informed about its execution immediately. Online trading has also added to the advantages of trading reducing costs for both traders and investors.
Easy access to back-end accounts:
Online trading also ensures that you have access to your back-end accounts all the time, thus enabling you to know your stock and cash position. Further, the online system ensures you also have ready access to all your previous investment statements.
No conflict of interest:
Watertight compartmentalisation of proprietary trades (i.e. trading for self in own account) and client transactions also protect innocent clients from any wrongdoings by the brokers. SEBI has clearly laid out procedures to effectively prevent any conflict of interest between customer trading and proprietary trading activities
