Beginners Guide to the Stock Market

The stock market can look a rather intimidating experience to a beginner. But the truth is, with depressing returns on offer from banks, bond, insurance, fixed deposits and from other sources, investing in shares provides an opportunity to achieve much higher returns.  

Let’s talk about stock market basics:

Stock Market is also known as Share Market or Equity market. It refers to the marketplace where shares or stocks of a limited company are bought and sold in an exchange. Both buyers and sellers encounter to buy and sell shares of the company which are listed under them. NSE (National Stock Exchange) and BSE (Bombay Stock Exchange Limited) are two main equity exchanges in India, where there is a benchmark Index for both exchanges. Nifty is the index of NSE and Sensex is the index of BSE. Nifty is a composition of 50 stocks traded in NSE and Sensex which is a composition of 30 stocks traded in BSE.

Primary & Secondary Market:

The stock market is divided into two markets one primary market and another one is a secondary market. The primary market is where the companies list their newly issued share to the public. These newly listed stocks can be purchased directly from the company through the primary market. This issuing process is called IPO (Initial Public Offer). On the other hand, the secondary market is much bigger than the primary market. Here the shares bought from the primary market may be traded further in the secondary market. All companies shares can be purchased or sold on the secondary market.

The following accounts are needed for trading in stock market.

• Bank Account

• Demat Account

• Trading Account

These 3 accounts are separate accounts. You need a linked bank account with your broker because when you buy stocks or shares you need to transfer money for trading also you can withdraw your money into your account when you sell your stocks. Demat account is like a bank account where your shares are kept in electronic form. A Trading account is an account which is opened with an exchange registered broker for buying and selling of stocks.

Delivery and Settlement:

When an investor buys shares and does not sell them on the same day. He/She holds the stocks for more than 1 day then he/she receives the shares in his/her Demat account. This is called delivery. If you purchase a share on Tuesday then you will be getting your shares on Thursday. This process is completed in T + 2 days, T refers trading day. These processes of the buyer getting his shares in his Demat account and the seller receiving his money is called settlement.

Few things you should always remember as a beginner:

• Do not invest money you cannot afford to lose. Make sure you are investing slowly. Don’t rush of stocks which are jumping. When you have realized gains from one or two stocks, you can go for reinvesting that gain which is now your capital. 

• Do not invest all your money just into 1 to 2 stocks. Always try to diversify your investment on investing at least onto 5 to 7 shares. That will definitely help you to survive in the stock market. It is very obvious that out of those 5 to 7 stocks 1 or 2 stocks may not perform well. 

• Do not invest in stocks if you don’t have any time to research. Always do research the stocks that you are going to buy. Never ever buy a stock without a proper research. Stock trading should be considered as a part-time job. Like any job, your skills will suffer if they are not regularly practised. If you do not have time to exercise, consider investing in mutual funds instead. Never invest in a company share. Invest in a business instead. And invest in a business that you understand. That means, before investing in a company, you should know what business the company is in.

• Don’t buy stocks high: Beginners should be very careful when they are buying stocks. Don’t buy stocks when the stock market is in high. Always buy stocks when the market is in panic and sell your stocks when the market is up. Stocks may be trending upwards at a great pace, in that case, wait for the stock for the correction. Don’t jump to buy the stocks, always wait for the market to come down.

• One more thing you must remember before buying stocks. Your stocks may come down, for an example, you have purchased a stock X at Rs.500 as you think it’s the best price and time to purchase. But in reality, it may come down further may be from 500 to 300. Don't despair or pull your money out at that time. Because Stock trading is a long-term investment and it requires patience.

• Plan your investment precisely:  you need to make sure what you want to achieve, how long you are planning to invest for and how much risk you can take before buying stocks.

So get a pan card, select your broker, get a trading and Demat account in your name and start researching and trading and keep following my blogs…..