How To Trade In The Stock Market – Complete Guide for Beginners

With rising costs, everything is becoming expensive by the day. Be it petrol, education, real estate, medical expenses or basic household essential items. But our paychecks do not grow at the same pace as the prices. Hence, we all look for additional sources of income.

The stock market provides an excellent opportunity to earn additional income and create wealth in the long run. Share market has the potential to give you enormous profits but while there are profits, there can be losses also and while there are ups there will be downs as well. So how do you sail through the stock market volatility?

For beginners, it can often be overwhelming to understand how to trade in the stock market. This guide is for them!

What is trading in stock market ?

Stock trading means buying and selling the shares of companies listed on the stock exchange with the intention of making a profit. The share market is divided into two kinds of markets - the primary market and the secondary market.

· Primary Market: A primary market is where the shares of a company getting newly listed are bought directly from the company through the stock market. Here, the transaction takes place between the issuer and the buyer.

· Secondary Market: A secondary market is where the shares bought off the primary market may be traded further. Here, the transaction takes place between the seller and the buyer.

How to Start Trading in the Stock Market?

· Open a Demat Account and Trading Account

You need a demat account and a trading account to trade in the stock market.

A demat account acts as an electronic house for your shares. It is similar to your bank account where you hold your money. Likewise, a demat account holds the securities that you buy in digital format.

A trading account helps you transact on the stock exchange. It is used to buy and sell securities that you wish to trade on the stock market.

· Link a Bank Account

It is wise to link your bank account to your trading account to ensure easy movement of funds in and out of your account as you trade. These days, you can find three-in-one accounts which include a bank account, a demat account and a trading account all into one account.

· Set a Budget

Set a budget for your stock market investment. Factor in your monthly expenses and savings and determine the amount you can invest in the stock market. You can use the 50 – 30 - 20 rule for investing. Keep 50% for needs, 30% for wants and 20% for savings and investment. Gradually, you can increase this amount as per your financial situation.

· Understand the Difference Between Trading and Investing

People often misconstrue trading and investing and consider them to be the same but they are two different concepts.

Trading involves short term buying and selling of shares. Here the trader aims to take advantage of the market ups and downs and squares off his position in a day or few months.

On the contrary, investing refers to buying and holding shares over a longer term which can be months or years. Here the investor aims to accumulate wealth in the long term.

· Understand Stock Quotes

The price of a stock moves on the basis of technical aspects, fundamental aspects, any specific news related to the company and so on. Gaining an understanding of these aspects can help you figure out the right price to enter and exit a particular stock.

· Learn Fundamental and Technical Analysis

It is crucial to gain fundamental and technical knowledge of stocks.

Fundamental analysis is studying the company’s financials like profit and loss statements, cash flow, balance sheet, annual reports and various ratios for understanding the current and future growth prospects of the company.

Technical analysis is studying the price patterns of the company and predicting the future price movements on the basis of historical price structures and indicators.

· Pick Safer Stocks

As a beginner, it is good to pick safer and less volatile stocks. That may give you a slow start but a lot of confidence to walk through your share market journey. These stocks are more likely to perform well even in adverse market conditions.

· Apply Stop Loss

Learning to stop the loss is the key to becoming a successful trader. Since volatility is an indispensable part of the stock market, it is important for beginners to learn how to prevent heavy losses. Setting stop loss while executing a trade helps you minimise the loss. It also helps you control your emotions.

· Seek Expert Advice

It can be challenging to learn everything on your own. Hence, it is wise to seek expert advice who can help you make the right trading decisions. They can be your mentor and guide you to make the correct choices.

The Bottom Line

There is so much more to learn in the stock market. And you will learn all that as you sail through. But, the first step to trade in the stock market is to open a demat account. Get in touch with Indira Securities to open a free demat and trading account.