Stock Market basics for beginners- An ultimate guide

Stock market basics for beginners : Here we have covered all the basics and important points about stock market;  which will be very helpful for beginners , before further going  to  start.

 Here are the key points that, we will discuss one by one.

Stock Market Basics for Beginners

  • Myth about Stock market
  • why it is so important to invest in Stock market
  • History of Stock market
  • What is Stock market and how it works ?
  • Types of Stock market
  • who determines the price in Stock market
  • Stock Indices
  • Role of Broker in Stock market
  • What is Demat account and Trading account
  • What is means by Trading and Investment
  • SEBI
  • Equity market and Derivative market
  • Fundamental and Technical analysis
  • Why do we have to pay taxes and other charges to broker
  • Stock market tips.

Myth about stock market

A common people don’t want to invest in Stock market,  in fact still in our country a large number o f community  are available, who do not invest in stock market and suggest others to keep away from it. The reason behind is, they still think, to invest in a Stock market is a gambling.

 So the important question is why people lose their money in stock market ? Most of the people come here to be a millionaire in very short period of time, they think put your money in stock market and it will give your several times of return, so here their mindset is like a gambler not an investor. They throw their money to market without following any rules and regulations, and after losing all their money they blame on market that stock market is a casino.

But when you will invest  in Stock market with proper rules and regulations then in long term it will not create you money, it will generate a wealth for you.

Why it is so important to invest in Stock market ?

We generally invest in Stock market to create a wealth, similarly some people put their money in banks in form of fixed deposit, they generally gives 6 -7 %  return annually on their capital, also if we will notice, our inflation is also increasing with similar rate. So technically after doing fixed deposit the value of your money will be same after few years. Whereas Stock market have given a very good return in long term.

Many studies have proved that putting your money in the right stock for a long period of time (five to 10 years) can provide inflation-beating returns, and be a better investment option than real estate and gold. That’s why every person should be invest in stock market  for long term horizon. That will also help to grow our economy.

History of Stock market

In news paper and on television you have listen the word “Dalal Street” , how this term came in existence ?  In early days stock brokers grouped around banyan tree to conduct their trades, but later as the number increased,  they moved to a different place , around 1854 they named it  Dalal Street.

This is the place where the oldest stock exchange of Asia is placed with the name “Bombay Stock Exchange ” (BSE). Still BSE plays an important role in Indian economy.

Later in 1993 “National Stock Exchange” (Nifty) was formed. In early days all the works related to stock buying and selling was performed on paper,  later the whole system have been shifted to an automated trading environment on computer.

What is Stock market and How it works ?

A stock market is where the process of buying and selling the stock is performed with the help of stock exchange, like NSE (National Stock Exchange) and BSE (Bombay Stock Exchange).

In general term Stock market, Equity market and Stock market is similar or we can say all are equal but there is a difference  in Stock market and Stock market.

 A Stock market helps you to trade financial instruments like bonds, mutual funds, derivatives as well as stock of companies, whereas a Stock market only allows trading of stock. Here we use trading term to buy and sell for different instruments.

How Stock market works ?

In starting a company comes with an IPO, then stock get distributed among participants who got allotted the stocks, then the stocks issued can be traded by the investor.  

Stock brokers and brokerage firms are entities registered with the stock exchange which offers you to buy particular stock at said price. Your broker passes on your buy order to the exchange, which searches for a sell order for the same stock. The process takes T+2 days i.e. you will get your stock deposited in your demat account in two working days.

Types of Stock market

We can divide the stock market in two types based on their operation. Primary market and Secondary market.

Primary market  and Secondary market

In primary market a Company get listed  through an Initial Public Offering (IPO). In its offer documents, it lists details about the company, the stocks being issued, and so on. During the listing, the stocks issued in the primary market are allotted to investors who have bid for the same.

Once a Company listed , in secondary market, all trading related works performed, here invest sells the stocks, and traded by them. In this market buyers and seller gather  to conduct transactions to book profit, or cut their losses.

Who determines the Stock price in Stock market

It depends on Company performance, where company grows, earns regular profit, and show good results on quarterly and annual basis, then more investors wants to buy the stock , so here we get more demand in comparison of supply, and stock price goes up. So its market decision, finally market decides the price of stock.

Stock Indices

In Indian Stock market more than seven thousands companies listed. From these, some of similar stocks are grouped together to form an index on the basis of their performance, company size, industry, market capitalization, or other categories. The BSE Sensex includes 30 stocks and the NSE comprises 50 stocks. Others indices like the Bank Nifty, Auto, Infra, IT, Pharma etc,  some other indices based on market cap like the BSE Midcap or the BSE Small cap, and others.

Role of Broker in Stock market

there are thousands of investors and retail traders. It is impossible for all to converge in one location and conduct their trades. This is where stock brokers and brokerage firms play role. A broker helps to execute the trade, they find buyer for seller and seller for buyer.

Once you place an order to buy a particular Stock at a said price, it is processed through your broker and passed to the exchange. There are multiple parties involved in the process in background.

During it, the exchange also verify the details of the buyers and the sellers to ensure the parties don’t default. It then facilitates the actual transfer of ownership of shares. This process is called settlement. Earlier, it used to take weeks to settle trades, but now with in T+2 days its get completed. Means after two days your Stock get credited to your demat account.

What is Demat account and Trading account ?

Demat account is similar to bank account the difference is that in banking account you put your money whereas in your demat account you hold your Stock.  A demat account and Trading account are not same. Trading account is platform where you place your buy and sell order.  To hold the your stock in demat account there is no need  of trading account.

But if you want to do trading , means want to buy and sell Stock by yourself then you need a trading account. These days almost all the brokers provides the facility to open demat and trading account together.

What is means by Trading and Investment ?

The basic difference between trading and investment is, trading refers short time buying and selling shares . A traders rapidly churns the money  between shares , his main focus is basically on technical analysis, he follows the chart and indicator then based on it takes their decision.  In short term a trader basically plays with volatility.

Whereas an Investment refers long term buying of shares and hold them with patience.  An investor choose good shares for their portfolio and when he get opportunity then he add more shares. In long term these shares get high returns.  An investor basically focus on company’s fundamentals and their performance.

What is SEBI

You have listened about lots of Share market frauds like Harshad mehta scam, Ketan parikh scam, Satyam scam,  etc. So to control these types of scams a market regulator was required later a board have been made with name SEBI refers to Securities and Exchange Board of India

The SEBI has been provided some power to regulating the markets and it’s the responsibility to keep eyes on any irregularity. The basic objectives is to protecting investor interest, developing the share market, and regulating it’s operations.

Paying  taxes and brokerage to broker

As Share market is a business, in business if you earn profit then you must have to pay to your government , but here either you get profit or loss in your trading you must have to pay some statutory charges like GST, stamp duty and STT to the central or the state government. The broker does not get these payments. The broker just collects these on your behalf and deposits it with the government. Broker only take their predefined commission per trade.

Bonus:

Stock market Tips:

  • Before start to trading or investing always take your decision wisely or if possible take the advice of an expert.
  • Never put your all money in one Stock, try to diversify your investment in different sectors or assets.
  • If you want to start trading, never start with a large amount, but to learn or to getting some experience, you can start with a small amount of money.
  • Patience is very essential for any investor.
  • Its not wise to take decision based on rumours.
  • Monitor your portfolio regularly so that you can eliminate the loss making Stock.

I hope in this post “Stock market basics or beginners” , you have learned something. If you found this post informative and helpful then don’t forget to share it with your friends and on social media platform.

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