The idea of investing in multibaggers and making a fortune is very appealing, and that drives us to become investors in the stock market. However, when one begins their investment journey, they may be overwhelmed by the different aspects of learning about the market. So we have to put together a beginner’s guide to help any beginner out there acquaint themselves with the basics of the stock market. We will understand what the stock markets constitute and then touch on how you can start investing.
What is The Stock Market?
You can think of the stock market as a marketplace where traders buy and sell publicly traded companies. A trader or an investor may trade a company by purchasing or selling its shares. A company’s shares are units that an individual or organization can own to denote a stake of ownership in the company. In simpler words, if you buy shares of a company, you own a chunk of the company.
The share market can be bifurcated into two types: the primary market and the secondary market. A company that wants to become a publicly traded company has to issue shares to the general public in the primary market. It does that by coming out with an initial public offering (IPO). Once a company launches its IPO, it becomes a listed company on the stock exchanges like the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). After that, regular trading of it commences.
How to Invest in the Stock Market?
Share trading and investing in today’s digital age are conducted over the internet. So, to invest online, you require two accounts: a demat account and a trading account. Once you open the accounts mentioned in the previous statement, you can use your phone, tablet, or laptop to invest in the markets. You log into the trading app or platform, and with a few clicks and a simple search, find the name of the company you want to invest in or trade. Then choose the type of order, and enter the price and quantity details to place your bid. In two trading days, the stocks will get credited or debited from your demat account, depending on the nature of the order.
How to get a Demat Account and a Trading Account?
From the last statement of the previous paragraph, you may have figured out that a demat account’s function is to store shares electronically. Hence, to invest online, owning a demat account is crucial. Likewise, a trading account is equally important as it lets you execute buy and sell orders in the market. Now, demat accounts services are provided by the depositories. They are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited) in India.
However, to open a demat account, you will have to approach a member of the depository called the DP (depository participant). The DP makes demat account services and trading accounts available to the general public. Along with those accounts, they also may provide various other trading facilities. The DP even provides the trading app or platform you eventually use to trade. So research well if you want the best app to trade in India.
You can head to the DP’s website to open a demat account and a trading account. Over there, you apply for a demat account, fill out a form, and provide online copies of supporting documents. Your DP will then authenticate your credentials and provide your trading account details.
Which Stocks to Buy?
You now have a fundamental understanding of the stock market and know how you can start investing. So, let us get to the most sought question—how to pick the best stocks? However, first, let us understand what influences stock prices.
Demand and supply are the core factors responsible for the movement in stock prices. In the short term, various factors like news and misconceptions can affect a stock’s demand and supply. However, earnings determine the stock’s demand and supply in the long term. So, as a long-term investor, you must analyze which companies can scale up their operations to grow their earnings consistently. You can only do that if you have a decent understanding of business and know what fundamental parameters to look at while analyzing the business. Therefore, if you want to become an investor, it is paramount that you learn fundamental analysis. However, one can also make money in the markets through short-term trading. In that case, you focus on analyzing charts and learning technical analysis.
There are various types of investing and trading strategies. That gives rise to multiple approaches you can take to earn money in the stock market. Therefore, it is essential that you research more and understand the pros and cons associated with the various methods. Then, you pick what is best for you, but regardless of your pick, learning in the stock market is a continuous process.