Are you a beginner and want to know how to invest or start in the stock market? Then you are at the right place. This blog is designed for beginners to understand the basics of the stock market in a simple language.
For the past several years, the stock market become a hot topic. Everyone wants to trade or invest without proper knowledge and guidance. In our terms, we called them a gambler.
Before investing or trading, basic education is a must. Try to educate yourself about the stock market. If you learn the basic things, it will boost your investing or trading career. Let’s ride the basics of the stock market.
What Is The Stock Market?
A stock market is a place where buyers and sellers come together for trading or investing purposes within a specific period. There are lots of companies listed on an exchange. With the help of a broker, we can trade or invest. Here, a broker is an intermediate. Broker provides the facility of transaction of stocks.
Things Required To Start In The Stock Market?
For starting a journey, certain things are required. Here, for the stock market, we require a plate form or a broker where we can buy or sell the shares.
1. Demat Account
For investing purposes, a demat account is mandatory. Suppose you buy stocks of some XYZ company. These stocks will be stored in your demat account? A Demat account is basically for storing purposes. Some documents are required to open a demat account, like a PAN card, Aadhar card, passport-size photo, and a bank.
The process of opening a demat account does not take so much time. Within three or four days, the process is complete.
2. Trading Account
A trading account is used for day trading. If you want to buy or sell the shares within the same day, a trading account is used for that purpose. To open a trading account, the process is the same as a demat account. Some broker provides both demat and trading account in the same bundle with minimum charges.
How Can I Invest Or Trade?
Investing and trading are both different things. One who learned both topics will understand the stock market basics. We will discuss this briefly one by one.
Investing
The term investing is defined as you buy a share of any company. Now, basically, you are the company’s owner with some shares. For good returns, you hold those shares for the long term, like four to five years.
If you analyze a good company and buy some company shares which is technically and fundamentally strong. They can provide you with a minimum of 15 to 20% of return per year. Apart from that they provide you with divided. Which is a bonus type of money.
The main core of investment is time. With time, they proliferate. If you provide them, some years, maybe five to ten years. They will show the power of compounding and benefit in dividends.
Experience investors suggest that you diversify your portfolio. Diversifying means that you should invest in different companies. Don’t put all your funds in a single stock. Divide your funds by ten and then invest in ten different sectors.
If you invest in a single stock, the stock falls after some time. All your funds will go. This is why you should invest in ten different stocks rather than a single one.
There is a proverb in English for the stock market: “Don’t put all your eggs in one basket.” I guess you people can relate to this.
Trading
Trading or day trading involves actively buying or selling securities. Day trading is for short-term purposes. In day trading, you buy or sell stocks within that particular day to gain profit. Day trader tries to capture short-term market moves. It has nothing to do with investing.
Day trading requires good planning with a lot of knowledge and skills. If anyone wants to sustain in day trading, one should have a good amount of capital. Although the broker provides leverage for day trading. With the help of leverage, we can take more stocks with less amount.
Day trading is a risky business. There are some factors on which day traders work to be profitable. They are as follows
1. Chart Reading
Most of the day, traders take their trade on chart. They find patterns from charts like breakout, breakdown, support, resistance, double bottom, head & shoulder, cup, handle, etc. They take trade by analyzing reasonable risk and reward ratios.
2. Scalping
Scalping is a type of trading where you take trade for one or two days according to momentum. A chart is a basic indicator to show momentum. It’s a very risky type of trade, and lots of people ignore this type of trading. This type of trading requires good experience and knowledge.
3. News-Based Trading
This indicates that it is news base trading if any news comes about that stock. The trader hopes that momentum can come. To capture that rally, they want to trade.
The Risk Factor
We all know that trading, or day trading, is a very risky business. According to data, 90% of people lose their capital in day trading. These newbies or intermediates started day trading carriers some months ago.
There are specific ways to control your risk. According to experienced investors and traders, there are some precise areas that you can follow to avoid or minimize your risk.
1. Risk/Reward Ratio
The risk-reward ratio is defined as how much capital you are ready to lose on profit. The ratio of profit and loss is the risk-reward ratio. Suppose your risk-reward ratio is 1:2, which means you agree to lose one rupee against two rupees of profit. An experienced trader says your risk-reward ratio should be 1:1.5 and above to be profitable.
2. The Money Management
Lots of new traders ignore the concept of money management. They don’t know what money management is. It is managing your capital and protecting it. The new trader should rule that I will take minimum trades per day. They should also fix this small amount I can handle as a daily loss. Manage your funds wisely and protect them. Try to save your capital.
3. The Emotion
When we talk about money, we get emotional. There are some emotions connected with money. In trading, there is no place for your emotions. The market first throws out those people who are emotionally weak in their trade. we make lots of wrong trade in emotions. In the stock market, our emotions do not work. What work is patience? So, if you are emotional, try to control it.
Tips For Beginners In The Stock Market
Start now
- Start early
- Educate yourself
- Start with low capital and practice
- Diversify your portfolio
- Be prepared for ups and downs
- Be patient
- Keep investing
The bottom line
The stock market is a good place to grow your money rapidly. A risk factor is involved with it, and all business has the risk. What we can do is minimize our risk. I suggest you start early, and the first focus should be learning. You have to understand how the market works.
