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Managed vs Do-It-Yourself Trading

Updated: Sep 13, 2019


With overwhelming stock market performance in recent times, the usual methods of investing savings into risk-free or near risk-free options like Fixed Deposits or else corporate bonds are losing their charm. There are obviously different schools of thoughts depending on the earnings, age, risk appetite as well as financial commitments people have. As always 'the grass is always green on other side'.

We all studied Newton's laws in Science in our early studying years, and one that is of relevance here is: The whole amount of Energy in the Universe remains constant. We can convert one form of energy into another but the total amount will always remain same.

Whenever I think of investments, I think of the above law. Does it apply to wealth too? Fortunately not. In a recent conversation a statement that stuck with me with regards this context was: 'Wealth needs to be generated!' Thankfully if we aim to have more wealth, its not going to come at someone else's cost. Ethics plays an important role in how we think about creating wealth, so I wanted to bring this analogy here. Unlike Constant Energy in the Universe, Money is not Constant. Pick up any Stock Index for that matter. Innovation, technology and human drive has led to continuous growth in stocks' price! And investors can be part of gains through shareholding stocks.

Life is not a bed of roses, though. While we earn we spend. And many a times the earnings are well surpassed by the spending leading to debt. If you are thinking of investing into stocks, it should be done after you have cleared off any debts. Stock trading / investments should be considered as an alternative to any other form of investments like FDs, Bonds, Real-estate, IPO, Private Equity, Hedge Funds investment and the list goes on ... One should be fully aware of risk associated with investing in stocks. So it could be great year for instance for the picks you make in one year but not so great the next and so on ... It certainly requires a long term horizon planning and thinking rather than quick guaranteed gains option. Trading is like any other profession and requires dedicated years of efforts to understand the market and build profitable strategies, and yes there are times of lows associated too! While the rewards can be high!

What is the difference between Managed vs Do-It-Yourself Trading?

Managed Trading means an adviser guides the investor with research, stock picks, trading signals in a timely manner. The adviser is essentially charging some fees for dedicated research (team / self) but the eventual decision of buy and sell a stock or else other financial instrument(s) remains with the individual. This is a good option for someone just getting into trading, as the entire range of financial instruments and which one to pick and when to buy or sell, could become overwhelming. DIY trading is quite the opposite as the name suggests, and people spend months and years to learn trading tricks, and strategies to eventually start trading with real money and start making gains. Trading is essentially like any other profession.

Why is it essential for Traders to have an awareness of markets even if they decide to outsource money management?

Whether new or seasoned, every investor should be well aware of where their hard-earned money is getting invested. And also be fully aware of risks associated with these investments. This is important for any size of investment portfolio. We all live in a connected world and the insights which we get from our day-to-day interaction with people around could form a huge input to our investment choices and decisions. The two worlds are not disjoint and hence its quite important we keep it that way. Look for clues from real world to pick or dump a stock / financial instrument.

Some good tools for each of the above for Indian markets:

Zerodha is a newer trading platform and has attracted quite some retail traders for the ease of trading. They offer easy to understand tutorials and follow a Do-It-Yourself model. So you open an account, explore the platform and start buying and selling financial products.

Sherkhan is relatively older trading platform with consistent user base. Sherkhan has some advisory incorporated with alerts / notifications / recommendations on regular basis for traders to base decisions upon.

From an international market perspective:

Online Trading Academy (OTA) is not a trading platform. Its an online Academy to learn and practice basic and advanced trading strategies. There are different membership options and traders can get lifelong guidance about the very latest trading techniques and strategies.

These and many more can be a great starting points for anyone venturing into trading. Once you have explored these options, you can choose from the Do-It-Yourself vs Managed options depending on the size of portfolio.

We will keep updating our readers with further resolution to queries and guidance on the topic of trading and investments. Good luck!

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