The stock market is a pulsating investment avenue for Indians. It attracts small and large investors alike. There are three reasons for the popularity of the stock market –
- They have the potential to give high returns
- They can grow your wealth quickly
- They are very liquid
Even modern-day investors are finding the share bazar to be the preferred investment avenue for maximizing wealth. The Central Depositories Services India Limited, called CDSL in short, reported a 20% increase in the opening of Demat accounts from March to September 2020.
With the markets performing fabulously over the last few months, there is a potential of wealth maximization. If you also want to try your hand in the stock market, knowledge, understanding, and some basics of the stock market are rudimentary. So, let’s have a look into some stock market basics of beginners.
What is the Stock Market?
The stock market is a marketplace where the common stocks of listed companies are traded. In simple terms, the stock market is a platform where stock or shares are bought and sold. Trading means buying and selling, and so, when we talk about stock trading, it essentially means buying and selling of stock.
There are two main types of stock exchanges in India, the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange). While the BSE operates the Sensex, Nifty is operated by IISL, an NSE subsidiary.
The tools of the trade
To buy and sell in the share bazar, you need some basic tools. These include the following –
- An active bank account from where the financial transactions would take place
- A Demat account for holding your stocks in a dematerialized format
- A trading account for trading in stocks.
- A stockbroker through whom you trade in stocks.
Once you have these tools, you can start trading in the stock market.
What are the Basics of Trading?
If you want to start trading, here are a few basic pointers that would help you:
- Learn about the market
Read about the trading mechanisms of the stock market before you begin. Knowledge of how the market works is important before you invest your hard-earned money. Read stock market-related books, undertake a stock trading course, or talk to experienced traders to understand the basics of trading in the stock market. You can also use Indian wealth management services offered by leading companies for expert guidance in trading.
- Use surplus funds to invest
Since you are a beginner, start small. Invest the surplus funds that you have after meeting your financial responsibilities. Invest towards your financial goals first and then use the remaining savings to invest in the stock market. Once you learn the basics of trading, you can use stock investments to create funds for your goals, but when you are starting, be careful.
- Don’t get too emotional
The stock market is a roller-coaster ride. It has its ups and downs, and you need to be practical when investing. Don’t be swayed by an upswing or a downswing. Assess the stock and then trade in it.
Build up a diversified stock portfolio so that you can diversify your risks. While some stocks might fall, others might increase in value, stabilizing your overall portfolio. Don’t put all your eggs in one basket. Diversify across stocks of different sectors for a balanced portfolio.
- Know when to exit
You need to assess when you have to book your profit or cut your losses and exit. While long-term investment is good, having an exit plan allows you to get the maximum gains and prevent excessive losses.
Different Options for Trading
Trading not only means trading in stocks. There are different options of trading available that you can explore. These options are as follows –
- Intraday trading
Intraday trading means trading in stocks in a single day. Through intraday trading, you buy and sell stocks on the same day to earn profits.
- Commodity trading
Besides trading in stocks, you can also trade in commodities that are listed in the commodity markets. Commodities are moveable goods and assets that can be bought and sold. In India, the commodity market has four types of commodities:
- Energy like natural gas, crude oil, etc.
- Metals like gold, silver, copper, and platinum
- Food like rice, wheat, pulses, etc.
- Livestock and meat like eggs, cattle, pork, etc.
You can trade in commodities through a commodity trading account opened in your name. The commodity exchanges of India include MCX, NCDEX, ICEX, ACE, NMCE, and UCX.
- Futures and Options trading
Futures and Options are stock derivatives. Under a Futures and Options contract, you agree to buy or sell a stock at a pre-defined price on a pre-defined date. For example, if you agree to sell Stock A after 15 days at Rs.15/unit, it would be a type of futures and options contracts. Commodity trading can also be done through a futures contract.
- Forex trading
Forex trading is trading in a decentralized currency market in different world currencies. Under forex trading, you buy and sell currencies of different economies. You need a forex trading account, and the trading is settled on a cash basis daily.
Thematic investing is when you invest as per a central trend or theme. Thematic investing uses macroeconomic trends to assess and analyze different investment options. A considerable amount of financial research is undertaken to design a portfolio according to a particular theme. For example, if the theme is climate change, the investment can be made into stocks of companies engaged in the power sector, technology sector, etc.
Which Trading is the Best for Beginners in India?
Beginners can opt for thematic investing, where expert fund managers make investment decisions. Thematic investing is about investing in a particular theme based on the macroeconomic trends in the market.
Stoxbox offers thematic investment for beginners where the portfolio is composed of handpicked stocks, ETFs, mutual funds, and other avenues based on a complete quantitative, qualitative and fundamental analysis.
So, understand the basics of the stock market before you start your investment journey. Consider the different trading options available and expand your horizons. Know the rules of trading to avoid making mistakes and losing your money on the stock exchange.
For a readymade portfolio, you can choose Stoxbox and invest in a basket of avenues based on your investment theme.
Stock investing is rewarding. Understand its basics so that you can avoid pitfalls and earn the rewards too. Build your wealth and create sufficient funds for your financial goals so that you can become financially free.
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