Technological advancements have influenced businesses, social lives, the education system, and whatnot. The stock market is also one of the major sectors that have changed its working system completely through technology. Stock traders are more comfortable with increasing awareness and knowledge using online and offline sources. Some individuals want to become full-time traders, while others trade with their spare money. Many students are also interested in stock trading for their pocket money.
Here are important aspects of stock market basics that beginners should know about:
What are Stock exchanges?
A stock exchange is an online platform used to perform trading activities in the stock market using a demat account along with a trading account. You can buy and sell stocks and other securities on the stock exchange. Major stock exchanges in India where most companies are listed include the BSE and the NSE.
For every trade in the stock market, stock exchanges are the counterparty party as they are the surveillance system for trades placed in the market and manage risk. Stock exchanges, through clearing corporations, settle the trades. Thus, stock trading is easy, convenient, and completely safe.
However, individuals cannot approach a stock exchange directly. They need a demat account and trading account with a stockbroker.
Know The Difference Between Demat And Trading Account
Demat and trading accounts are prerequisites for online stock trading. These are linked to your bank account. You can open a demat account and trading account online with a discount stockbroker for free. This is the main difference between demat and trading account.
- Online Demat Account: It is an online repository to store your financial securities in the stock market, like, stocks, derivatives, mutual fund units, bonds, government securities, commodities, etc.
- Online Trading Account: It is the account to place trade orders to buy/sell securities on the stock exchanges. It allows you to access the trading platform provided by the stockbroker. Multiple stock exchanges are linked to a trading platform to place a trade order at the relevant stock exchange.
Understand Different Investments
Beginners in stock market investing should understand various investment options. Among various stock investments, some are as follows:
- Equities: These are the shares of a company open to investment on the stock exchanges. You can invest directly in the shares of a company in the primary market through initial public offerings (IPOs) or trade them on stock exchanges in the secondary market. Individuals should consider the upside or downside of a company before investing in the shares.
- Mutual funds: If you want to invest small, you can opt for mutual funds and make periodic regular investments. These are professionally managed funds that invest the pooled money from numerous investors and invest in a diverse mix of securities based on the investors’ investing goals. These are considered less risky than direct equities but involve a cost.
- Exchange-Traded Funds (ETFs): It is also a type of fund that follows an index, sector, or commodity to invest the pooled money.
- Bonds: When investors look for a regular income and risk is a concern, they choose bonds issued by governments, corporations or municipalities. Generally, these are long-term investments. These are considered less risky than equities and mutual funds.
Know the Right Approach to Investing or Trading Securities
- Have a clear mindset
You need answers to a few questions to have a clear mindset:
- Whether you want to be a trader or an investor
- Determine your financial goals and investment horizon
- Know your risk-taking capacity.
- Evaluate Your Investing Budget
Beginners may get confused due to myths around the market, like the requirement of a huge amount to start investing in the stock market. In reality, you can trade even one share using a demat account. You should have a defined budget before investing or trading. Invest that you can afford to lose. Risk is inherent in stock trading.
- Focus on the Long-term Returns
Investors have different approaches to tapping into stock market opportunities. Successful investors suggest investing in fundamentally strong stocks for the long term. Research companies with strong financials and fundamentals with a high potential for growth in the long run. Long-term investments can reduce the risks and increase the probability of making significant profits.
Diversification is an ultimate rule to follow by every participant in the stock market. Avoid parking all your funds in one stock. Enlist the best companies based on the growth rate. It is also necessary to reconsider your investment portfolio periodically. It is necessary to ensure that your investments are still in sync with your defined financial goals.
Thus, in this technological framework, you can track stocks and invest any time anywhere using a computer or smartphone with active internet services. Understand the basics and develop an investment strategy to minimize risk and maximize returns from the stock investments. Before making any investment decision, look honestly at their financial situation. Open your demat account with a reputed discount broker for free to start your investing journey with affordable brokerage plans.