Why is Share trading Most Common Among Individuals
Share trading has grown in popularity as the means of personal investment. Regular individuals might now trade in the stock market from the comfort of their homes thanks to the growth of espresso online trading and smartphone apps. In this blog, you’ll look at some of the main factors that have contributed to the popularity of share trading among individuals.
1. Ease of Access
In the past, for an individual to start trading shares, they had to go through a lengthy and inconvenient process. They would need to physically visit a brokerage firm and complete significant paperwork to open an account. This paperwork involved providing documents for identity verification and address proof. Once the account was opened, all trading activities also required visiting the broker’s office or making phone calls. Any updates to account details or additional requirements also meant additional visits. This traditional process was time consuming and not very convenient for many busy individuals. However, the procedure became entirely digital and more straightforward with the emergence of internet trading platforms in the previous 10 to 15 years. Now, people may quickly and easily create trading accounts online from their desktops or mobile devices.
2. Potential for High Returns
Among the main benefits of stock market investment is the possibility for better returns than those offered by conventional savings choices. Long-term historical statistics from India’s financial markets show that equity investments in the form of stocks and mutual funds have historically provided returns that have regularly outpaced both the rate of inflation along with interest rates on fixed deposits as well as savings accounts. Even a return that is relatively modest, say 1-2% higher than bank deposit rates each year, can make a huge difference to the overall corpus over 20-30 years when these returns are reinvested and allowed to grow through the power of compounding. For example, an annual return of just 12% on equity investments compared to 10% from a bank FD can more than double the ending amount over a 25 year period, assuming the same starting investment.
3. Ability to Diversify Risk
While individual stocks do carry risks, share trading also allows individuals to mitigate and
diversify those risks effectively. By constructing a portfolio with a mix of stocks from different sectors and industries, individuals can reduce the impact of company-specific or sector-specific risks on overall returns. Even for those with limited capital to invest, online trading platforms have made it possible to build diversified portfolios through low investment amounts in fractional shares. This ability to spread risks across multiple stocks is a big attraction compared to other alternatives like direct investment in individual companies.
4. Opportunity to Learn New Skills
For many individuals, share trading also provides an opportunity to learn new financial and analytical skills that are valuable in various aspects of life. Careful study of company fundamentals and financial reports, tracking economic and industry trends, and understanding market psychology helps develop research, analytical and decision making abilities. The learning that happens from both successes and failures in share trading stays with individuals for a lifetime. Some even see it as a hobby that keeps them engaged and sharpens their business acumen. This prospect of acquiring new skills along with the investment activity itself is another reason driving individual participation.
5. Potential for Beating Inflation
Rising inflation poses a challenge for wealth creation and preservation over the long run if money is left idle in bank savings accounts. While inflation cannot be timed, history shows that share trading provides a better hedge against inflation over the long term compared to fixed income instruments. Even if returns from equity investments in some years are lower than inflation, averaging into quality stocks during downturns and holding for many years helps individuals beat inflation and grow their wealth in real terms. This inflation beating potential of equities makes share trading an attractive proposition for wealth creation goals of individuals.
6. Tax Benefits in Some Countries
In certain countries, favorable tax treatment for capital gains and dividends from share trading provides additional incentives for individuals. For example, in some tax jurisdictions long term capital gains from shares held for over a year are either tax exempt or taxed at lower rates compared to regular income or short term capital gains. Some countries also provide partial or full tax exemptions on dividend income. These tax benefits, when applicable, make the prospect of wealth generation through share trading even more lucrative for individuals after accounting for taxes.
7. Behavioral Factors
Behavioral factors also play a role in the rising popularity of share trading among individuals. The excitement of the markets, thrill of potential gains from well-timed trades, overconfidence in one’s abilities, and fear of missing out on opportunities tend to draw more people towards direct equity investing. Peer influence from friends and family already engaged in trading also nudges individuals to participate. While such behavioral biases should ideally not drive investment decisions, they undoubtedly contribute to the growing interest in share trading among retail investors.
8. Rise of Socially Motivated Investing
Another emerging trend is the rise of socially motivated or impact investing among individuals. Younger investors especially want to align their investments with their principles of environmental, social and governance (ESG) goals. Share trading provides a way for them to support companies addressing global challenges like climate change, healthcare, education etc. through their investment choices. The growing options for ESG or sustainable funds and exchange traded funds (ETFs) have further fueled this trend of values-driven share trading among individuals wanting to create positive social and environmental impact.
Conclusion
The combination of easy access through digital platforms, potential for higher returns, ability to diversify risks, opportunities for learning new skills, inflation hedging properties, and in some cases tax benefits – have made share trading one of the most popular investment avenues for individuals globally. Newer trends around socially motivated investing are also attracting more participants. Going forward, as wealth creation needs rise across demographics, espresso currency trading for beginnersis likely to remain a commonly used wealth building tool among the investing public.
