Before beginning any new work, it is critical to first learn the basics. This is also true for beginners to the stock market. In simple terms, the stock market is a location where shares are openly issued and traded. A share is a tradable document that confirms your ownership of a company. Buyers and sellers exchange these documents on the stock exchange. A legitimate marketplace for investors to purchase and sell their shares has been formed to ease public exchange.
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People used to meet at the trading ring to purchase and sell stocks before the internet. Today, however, all deals are conducted through personal computers in broker’s offices. Moreover, the term ‘Stock market’ and ‘Share market’ are used equally.
If you are new to Stock Market Investing, understanding How the Market works are Critical
- The stock market is a location where different firms’ shares are listed and traded.
- This trading occurs on platforms known as stock exchanges.
- The Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Metropolitan Stock Exchange (MSE), National Commodity and Derivates Exchange, and Multi Commodity Exchange are all stock markets in India (MCX).
- To purchase and sell stocks in India, investors must first create a Demat account and a trading account with a registered depository participant (DP).
The Securities and Exchange Board of India regulates the stock market (SEBI). SEBI establishes laws on the stock market to manage its operations, increase transparency, and safeguard investors’ interests. This helps investors to participate in the stock market with confidence.
1 Primary Market & Secondary Market
The Indian stock market is separated into two parts one is the primary market and the other is a secondary market.
1 Primary Market
When a company decides to go public and list on the stock exchange, it makes an initial public offering (IPO) (IPO). The firm issues shares to the public for the first time through the IPO. Investors who want to buy these shares do so on the open market. The IPO is often used to raise capital to help a company develop or expand.
2 Secondary Market
The newly created company is listed on the stock market once the shares issued in the IPO have been completely subscribed and assigned to investors. Its shares are now available on the secondary market. At their present market value, they can be freely bought and sold on the stock exchange.
2 Why Stock Price fluctuates?
When shares reach the secondary market, their prices are determined by supply and demand. Consider the following three basic scenarios:
- Many customers want to acquire the stock, but only a few sellers. Because of the great demand and little supply, the stock price will increase.
- There are a lot of sellers that want to get out of the stock, but there aren’t enough buyers. Here, supply is plenty but demand is limited. As a result, the stock price falls.
- The number of buyers and sellers is almost equal. In such a case, the price level may only change slightly.
Aside from it, a variety of other factors influence stock demand and supply, and hence stock prices. Here are some common aspects to consider as an investor
1 Company Performance
If the company’s results exceed expectations, demand for its stock will almost certainly increase. As a result, the stock price will rise. However, if the company’s performance breaks down, more stockholders may seek to sell their shares in a market with few purchasers. In such a case, the stock price may fall.
2 Sector Performance
Stock prices of firms in the same industry tend to move in the same direction. Stock prices in the industry are expected to grow if the sector as a whole is experiencing bullish trends. However, if the sentiment is negative, stock prices may fall.
3 News Events
Economic news, such as a change in the repo rate, may have an impact on a company’s debt cost. This might have an impact on its stock price. Political events, such as a change in a country’s governance, may also have an impact on stock price fluctuations.
3 Significance of Stock Indices
Learning to utilize stock market indexes is an important first step for new investors. A stock market index is a tool for tracking the performance of a collection of stocks.
The stock exchange has a large number of firm stocks. A stock market index picks and groups a set number of stocks. The selection of business stocks may be influenced by factors such as
- The industry in which the stocks are traded
- The size of the company
- The company’s market capitalization
The NSE’s benchmark index Nifty, for example, consists of 50 stocks, whilst the BSE’s Sensex consists of 30 firms. Bank Nifty, Nifty Pharma, Nifty Metals, and BSE Midcap are some famous sector indexes.
Indexes of the stock market can reflect the performance of the entire market or a specific section. This allows the investor to compare certain equities and determine if they are moving with or against a given index. Stock market indexes may also offer a sense of current investor mood, which can be useful for market traders and investors.
4 Equities & Derivatives
Equities and derivatives are the two types of items traded on the stock exchanges.
The equity market is concerned with company stocks. When you purchase stock in a company, you become a part-owner of the firm.
Futures and options are traded in the derivatives markets (F&O). These are financial contracts whose value is derived from underlying assets such as stocks, commodities, and currencies. The fundamental assets in the stock derivatives market are stocks.
5 How to trade or Invest in Stocks?
Online and offline stock trading are options for both beginners and experienced investors.
1 Online trading
Trading or investing in equities through the internet. Investors and traders can now use a variety of platforms, including the broker’s website, smartphone applications, and others. Online trading may be done from anywhere in the world.
2 Offline trading
In this option, you can either visit the broker’s office or call in your order instructions.
6 What is a Demat Account?
Your financial securities are held in electronic form in a Demat account. It functions similarly to a bank account, except for financial securities such as stocks, bonds, government securities, mutual funds, and other asset classes. With a Demat account, you may save and track all of your investments in one place online.
7 How to open a Demat account?
The process of opening a Demat account is straightforward. What you must do is as follows:
- Fill out the account opening form at the DP’s office or website.
- You must send copies of your PAN card, Aadhaar card, identification evidence, and address proof, as well as passport-sized pictures, to register a Demat account.
- Examine the documents that contain the terms and conditions.
- The following stage is in-person verification. Typically, the DP will send representatives to your residence. Some DPs, however, may allow you to finish the verification process online using Aadhaar.
- Following the completion of the requirements, you will be given a client ID, a Demat account number, and a password. You may now access your account and begin investing.
The Demat account, however, is essentially the first step. You will also need to register a trading account if you want to trade stocks. The same DP may be used to open this as well.
8 Role of DP
They will assist you in buying and selling stocks once you have created a Demat and trading account with them. Your DP or broker acts as a go-between for you and the exchange. Remember that the stock market is full of buyers and sellers. Finding the best offer is thus a difficult process. This is where the DP can help by allowing buyers to locate sellers and sellers to find buyers.
9 Trading vs Investment
The primary distinction between trading and investing is the duration of stockholding.
When a trader buys shares, they generally intend to benefit from short-term swings in the stock price. They might keep the stocks for a few hours, days, weeks, or months. The objective is to create consistent progress.
An investor, on the other hand, seeks stocks that will increase in value over time. The goal is to achieve long-term capital gains by waiting for stock values to rise over time.
10 How to Pick Stocks for Investing or Trading?
Before shortlisting any companies, investors and traders conduct extensive research and analysis. They take two techniques, however: fundamental analysis and technical analysis.
1 Fundamental Analysis
This type of examination entails researching the company’s fundamentals. Here are some of the steps to take:
- Examine the company’s balance sheet.
- Examine its chances for expansion.
- Examine if it is likely to be lucrative in the future.
- Examine its debt structure, for example.
The fundamental analysis exposes the company’s overall health. It assists investors in deciding if the company’s stock is acceptable for long-term investment.
2 Technical Analysis
In technical analysis, the price and volume charts of the stock must be studied. This may uncover trends and aid in forecasting future price fluctuations. Technical analysis is beneficial for short-term investors or traders who want to profit from price movement.