From our earlier blogs, you must have understood what stock market is so now let us dive in and see how one should start investing in the stock market. (If you haven’t read “What is stock market?” click here)
In earlier times it was a difficult and a tedious task to buy a share from the secondary market. One has to go to a physical market and shout out prices that they are willing to pay and in return used to receive a physical paper share. But today with all this advancement in technology, no one has to go anywhere. You can invest in share just by sitting at your home in front of a computer.
Let’s first start by jotting down the basic requirements for buying a stock:
There are various documents that are required by a person to start investing in Indian Stock Market:
- Aadhaar Card
- PAN Card
- Permanent Address Proof
- Bank Account Statement
A Stock Broker
General people can’t go to a stock exchange and buy/sell stocks. A stockbroker is a person who is licensed to trade in shares. Brokers also have direct access to the share market and can act as your agent in share transactions. For this service, they charge a fee. Every broker should be registered on the Securities and Exchange Board of India (SEBI). There are a number of brokers/sub-brokers which you can choose for trading.
You need a saving account with a bank to trade in a stock market and this account will be linked to your trading account. You have to transfer amount from your savings account to your trading account for trading or investing.
Trading and Demat Account
Trading account is one from where you buy or sell shares that are held in a demat account. You transfer money in your trading account from a savings account and then the money is added or deducted from a trading account on your buying or selling of shares. Unlike earlier shares are not available in paper form rather they are now available in electronic or dematerialized form. You need a demat account to hold these shares. These accounts can be easily opened with your bank or your broker.
Now you have the tools that will help you in your first trade in a stock market.
Tips that will help you to become a successful trader/investor
NSE for Beginners
In Indian stock market, there are two popular stock exchanges, namely National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). All popular companies are listed on both the exchanges. As a beginner, it is wise that you trade on NSE because of high trading volume and liquidity on the exchange.
Planning and knowledge
Don’t enter the market without proper planning. Get a good financial knowledge. Learn about basic Fundamentals and if possible then Technicals too before entering the stock world. Make yourself familiar with terms like Earnings per share (EPS), P/E Ratio, Book Value, Return on Equity, Dividend, etc. You need to do your homework otherwise it won’t take a second for stock market to turn into your nightmare.
Invest in business or sector of your interest
You must do proper research and analysis of the company or sector that you are interested in. Don’t just put your hard earned money on any random company.
Diversification of portfolio
Don’t put all your money in one stock. Diversify your portfolio i.e. buy stocks of different companies belonging to the different sector. This way you could minimize your risk.
Avoid what the crowd is doing
This is one of the biggest mistakes that beginners commit. Do not go with the crowd. Do your thorough homework and have faith in that. Don’t buy a particular stock just because everyone else is buying. Try to find out the reasons for such a sudden popularity of a stock and decide your course of action.
Control your Emotions
This the most difficult thing to do especially when you’re a beginner. It is hard to keep a check on the emotions but it is the key thing one should do to be successful in the stock market. Don’t let your emotions make the decision. Remember, the stock market is not a quick wealth making machine. Stock market is full of ups and downs. Hold on to your positions if you have done a thorough analysis before investing and don’t start selling out of panic. Keep a long-term view.