What is Trading?
The first thing is to know what a stock is and what stock trading means. Stock trading is buying and selling shares of publicly traded companies. Most popular known are stocks which include Apple(APPL), Facebook(FB), Disney(DIS), Microsoft (MSFT), Amazon (AMZN), Google (GOOGL), Netflix (NFLX) and more recent companies like Uber (UBER) and Pinterest (PINS).
The stock market has Buyers and Sellers. When you buy 100 stocks then someone is selling you 100 shares. If there are more buyers than stock, then therell be demand. resulting in the prices being goin up. just like that if there are more sllers than buyers the proce depretiates.
How to invest in share market?
Demat and Trading Accounts:
First step is to, open a demat and trading account online with a broker and link your bank account with that. Opening demat account is an easy process. Once you have your demat and trading account, you can start investing in the Indian share market. It’s essential for you to be familiar with the stock exchanges and their functions. Stock exchange is where buying and selling of shares take place. The 2 important stock exchanges of India are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).
Principoales of a trader
- Define your life goals
- Learn about financial assets
- Choose the respective asset as per your need
- Start investing regularly
- Fulfill your goals
This is just to understand different financial instruments.
Types of Stocks to Invest in Share Market
When you buy a share you common shareholder or preferred shareholder on the basis of ownership. As a common shareholder, youll be granted to vote in shareholder meetings with the benifits of revibving dividents. If the company youve unvested in goes bankrupt your shares willonly be liquidated after all preffered sharehlders and creditors are paid in full. On the basis of market capitalization, you can invest in large cap, mid cap and small cap stocks.
Market capitalization = share price*number of shares outstanding
Large cap stocks:
Companies with strong establishment and presence in the market are known as Large CAp stocks. Companies like TCS, Infosys and Wipro fall under this category. These companies posees less risk
Mid cap stocks:
These companies have the potential to grow big and are relatively riskier compared to the large cap companies.
Small cap stocks:
Start ups fall under this category and are highly risky compared to the above two. On the upside, they can become a runaway success overnight.
Mostly start ups are in this category and are highly risky while being compared to the above two. the upside is, they can become a runaway sucess overnight
IPO is the term Initial Public Offer. Acompany raises money from public through IPO. It sells its shares so the capital it brings can be used for the progress of the company. Your yeild gets high when you invest in a share due to the power of compaoudning. n simple terms, the price of share you hold today may be Rs. 100, it can double or triple if you hold the share for a long time.
Financial Instruments in Stock Market
Shares/ Equity:
Equites or stocks or shares give you ownership if a company. you’ll be able to sell or buy shares through a stock broker.
Mutual funds:
The money here is polled from many investors from various instruments. Unit holder is the name given to investors here. Profit generated is distributed to the unit holders in proportion to the units to held by them.
Bonds:
These are fixed income instruments also known as debt instruments by which government or a company borrows money from investors at an agreed interest rate for a specific tenure. These are less risky when compared to shares.
Derivatives:
A derivative is a contract whose value is derived from an underlying asset. It can be used to mitigate a number of risks. Derivatives include forward, futures, options and swaps.
HOW TO START INVESTING?
1. Opening stock broker account
To trade stocks, you need an online broker. Every broker offers something different. For a list of recommendations, read my full guide to the best online stock brokers 2021. Bottom line, some brokers are known for their trading platform and tools, while others provide excellent research, and some provide a bare bones experience but are simple to use.
For trading stocks, you need an online broker. Every broker offers somethind unique. Some brokers are know for their trading platform adn their tools, while other focuses on the best research, and some provide abare experince but simple.
| BROKER | BEST FOR | CURRENT OFFERS | START TRADING |
|---|---|---|---|
| TD Ameritrade | Overall & Beginners | Get up to $375 and trade commission-free | Open Account |
| TradeStation | Day Trading | Trade commission-free | Open Account |
| E*TRADE | Options Trading | $0 Commissions for online stock, ETF, and options trades | Open Account |
| Fidelity | Research & Investors | Trade commission-free | Open Account |
| Charles Schwab | Retirement | Trade commission-free | Open Account |
2. Read books
REading stock trading books always provide you with information and the rates are better compared to the classses, seminar and educational videos provided on the internet.
3. Read articles
Articles are the best research material for education. The most popular website for investment education us investopedia.com. I recomend going through memos of billionaire Howard Marks (Oaktree Capital) , which is absolutely worth your time and selecting Google search is an other way to find educational material
4. Find a mentor or learn with a friend
Having a mentor who has the experience or someone ho has nailed the fundamentals of trading can help you in a lot of ways. A good mentor is willing to answer questions, provide help, good suggestions and recommend useful resources and keeping the spirits up as the market gets tougher.
5. Study success of other investors
Learning about great investors and their perspective this can give you motivation and inspiration for the succeed in youir own edevours. Greats include Warren Buffett (below), Jesse Livermore, George Soros, Benjamin Graham, Peter Lynch, John Templeton and Paul Tudor Jones, among others.the Market Wizards by Jack Schwager book is a very good read.
6. Read and systematically follow the stock market
News sites such as CNBC and Marketwatch is a good source for beginners. To go more in depth Wall Street Journal and Bloomberg is your resource.
TV can be good way for gaining exposure in the stock market. CNBC is the most popular channel. Even turning on CNBC for 2 hours every day will increase your knowledge.
7. Buy your first share or practice through a simulator
By using your online Broker account, the next step is to plunge and place your stock trade. Do not be afraid ! start small adn even 1,10 or 20 shares serves it intented pupose of learning
Note – One of the most common mistakes new investors make is to buy too many shares for their first stock trade. This is a mistake. As a beginner, avoid the temptation to take excessive risk. Instead, begin with trading small position sizes, then slowly work your way up to buying more shares, on average, each trade.
8. Follow Warren Buffett’s advice, buy and hold the market
For the majority, online trading (especially day trading) will not outperform simply buying the entire market, such as the S&P 500, and holding it for many years. Warren Buffett, the greatest investor of all-time, recommends individual investors simply passively invest (buy and hold) instead of trying to beat the market trading stocks on their own.