Beginners Guide to Stock Market

Beginner’s Guide to Stock Market

Today, a lot of people want to invest into the markets and earn money however due to paucity of knowledge about financial education in India, people are just curious but do nothing about it. Many of them lack the main point that learning is essential to invest into the market.I would like to tell all those things  about trading/investing in the markets from scratch which no one will tell you.

Capital market or Share market (as it is commonly called as) is a combination of buyers and sellers not physically connected. It is a platform where trading can be done online between buyers and sellers. Many people feel that it is a type of gambling but I truly believe that it is not gambling; not a game of Teen patti, Poker or Betting as you do not lose your whole capital invested. The risk is calculated and anyone can earn a decent amount of money with proper knowledge and experience. In gambling, you just buy an instrument and expect it to fetch you good returns which is completely based on intuition and your gut feeling however in capital markets, you carefully analyse stocks and then purchase or sell them. If one is experienced enough, one would not involve emotions to the movement of the stock price and would determine the future movement with precise analysis. So this cannot be termed as gambling.

Investing in markets can be done in these three types:

1. Intraday trading – Intraday trading is referred as trading done within a single day. One should buy and sell the stock same day to gain profits or incur losses. The money one gains/losses in a particular day gets credited/debited from his Trading/Demat account within 24 hours after the market ends for that particular day. This settlement of money is known as (T+1) settlement. This type of trading is the riskiest and the most profitable type of trading.

2. Positional/short term - Positional/Short term trading is when people hold the shares for some days or weeks or some months upto 1 year. These shares are stored into your demat account. It involves moderate risk and moderate profits. The shares get reflected into your demat account after two trading days. Eg:- Suppose a person buys 100 shares of HDFC bank on Monday then these shares will reflect into his demat account on Wednesday evening. After that he can sell these shares. This settlement of shares is known as (T+2) settlement.

3. Investment/long term - 1 to 10 years

Long term investment refers to the buying of shares and selling them after 1 year. People may hold the shares for any amount of time. This kind of investment has the lowest risk and the profits are also low. People who invest for long term are called investors, people who trade for short term are called swing traders while those who trade within a day are called as day traders/intraday traders.

To start trading, you require:-

1. A trading account - It is used to buy and sell the shares.

2. A demat account – It is used to store the shares.

3. A savings account – One requires a savings account from any bank. It is used to transfer the money from a savings account to a trading account.

Generally, trading and demat accounts are combinedly created which are then linked to your savings account. A trading account is used to buy or sell the shares while a demat account is used to store the shares(in case of delivery). These accounts can be created with a broker for a minimum charge. A flat broker is better than a discount broker. Remember, the broker must be SEBI registered.

People can invest in the markets in the following vehicles:-

1)Equity – A stock or any other security representing an ownership interest. 

2)Futures- A futures contract is a legal agreement to buy or sell something at a predetermined price at a specified time in the future.

3)Options –An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price.

4)Commodity –Commodity trading focuses on investing in physical substances like oil and gold.Traders deal in raw materials used at the beginning of the production value chain such as copper for construction or grains for animal feed. 

5)Forex(Foreign Exchange) – It is the over-the-counter market in which the foreign currencies of the world are traded.It is highly risky and highly profitable.

Note:- Futures and options are known as derivatives(Equity).

Last but not the least, a major questions stands and that is whether one should invest into stock markets or not. I truly feel that before you decide to enter the stock markets, you should consider these three factors :-

1. Are you mentally prepared for stock market?

2. Are you physically fit for the stock market?

3. Are you financially fit for the stock market?

Once you have answers to these questions, it would be a clear picture as to whether a person is fit to invest into the markets or not.

By Abhiram Dapke