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.