The share market, which once intimidated new investors, now welcomes participants from diverse backgrounds to engage in stock investing and potentially reap financial rewards. Easy steps to get a head start include doing a lot of background work to make informed decisions and open the doors to potential investment opportunities. The first steps deal with understanding market basics, mainly the nuances of the primary and secondary markets.
Share Market Basics
Before you learn about the fundamentals of stock trading or investing, being a novice, you should have a grasp of the markets. Here are the two essential markets to know about:
- Primary Market
A market in which companies offer new securities to the public is called a primary market.
- Secondary Market
Once shares are issued in the primary market, they can be bought and sold (traded) in the secondary market. Transactions take place between buyers and sellers. In the secondary market, the broker or the stock exchange plays the role of an intermediary. Trading occurs in the secondary share market, including intraday trading where traders buy and sell stock on the same day to book potential profits.
Steps to Start Trading in Stocks
Nowadays, getting started with trading and investing is simple and you can trade stocks online. Beginners have it easier than their forefathers as they get to use digital yet easily navigable platforms to trade. Here are some tips/steps to get you up and running with your trading activities:
- Open a Demat Account
If you want to enter the share market in India, it is mandatory to have a Demat account. This is an electronic storage facility for your securities and is linked to a trading account for your buying and selling of shares or other securities. Your Demat account gives you access to most of your trading activities.
- Know Stock Fundamentals
Although you require some technical knowledge to weave your way around brokerage platforms, you also need sound information about stocks. Chiefly, you should know how and why stock prices fluctuate. This will give you clues to pick stocks to invest in and where to enter and exit positions in the share market.
Besides the factors that affect stock prices and their movements, learning about the technical aspects of stock prices helps in knowing how to buy and sell them. For instance, get to know about bids and ask prices. A bid price is the most that a buyer is willing to pay and an ask price is the minimum price that someone will want to sell the stock at.
Getting important data about the stocks themselves is also important. Do some research on the stocks whose companies you want to invest in, checking they are basically sound, both financially and in terms of their business operations. While you can trade stocks online quite conveniently, you can also get some expert guidance from experienced traders.
- Reduce Losses – Start Small
Beginners entering the stock market shouldn’t face losses, but even if they do, these should be kept at the minimum. If you’re a beginner investor, you can invest small amounts in the share market. That way, even if you make losses, they may not be large enough to affect you adversely.
Another way to start trading stocks without incurring potential losses is to begin with ‘safe’ stocks, those that don’t experience much volatility. Stock markets are volatile places with several factors like demand and supply, market news, economic activity, and more, influencing price action. Additionally, you can set stop-loss prices to mitigate losses.
Caution at the Start
The share market is open for trading and investing in a range of securities, suited to the financial needs of different investors. Investing isn’t scary if you trade with caution. Trading and investing in a variety of stocks across industries and sectors can result in portfolio diversification and see you making potential gains in your financial future.
