How to Invest in Share Market?
Updated: Jul 22, 2020
Hi investors, today we are going to talk about how to invest in the stock market majorly known as the 'Share Market' in India. This is a guide for beginners who have no idea how the stock market works. Nowadays passive income is as important as active income and investment is the best way to generate passive income. During the time of pandemic when most people are struggling for their active income; passive income can keep you going.
So what is Stock Market? According to Investopedia, stock markets are where individual and institutional investors come together to buy and sell shares in a public venue. Nowadays these exchanges exist as electronic marketplaces, or you can say that it's something that can make you rich if analyzed correctly. I being 20 years old have been investing in the stock market for 2 years and have made a decent amount of profit with a minimal investment.
To invest in the stock market you have to open a trading and Demat account with a regulated broker. A list of few good brokers in India with reasonable brokerage (Brokerage is the commission charged by a broker to trade in the stock market) are mentioned below:
Opening a trading account is a hassle-free process all you need is a PAN card, Aadhar card, and a Bank account and you are good to go.
How to trade?
Trading in the stock market is just like buying or selling day to day products. One way to put this is that the price depends on demand and supply. If the demand for a stock is more and supply is less than the price of the stock increases and if the demand for a stock is less and supply is more, the price decreases. Once a trading account is created you can start trading either through a mobile app or web browser associated with your broker.
Basic keywords related to placing a trade in the stock market are:
Market Buy: It means buying a stock from the market at the market price or creating a position in the company
Sell: It means selling a stock in the market at the market price or exiting a position from the company
Buy limit: It is used when an investor wants to buy a stock at a particular price and not at a market price. For eg. If a particular stock is trading at a market price of INR 100 but an investor wants to purchase it at INR 99, the investor will place a limit order which will basically create an order in the market but it will only execute if someone is willing to sell it at that price ( yes bargaining).
Sell limit: It is the same as the buy limit but used when an investor wants to sell a stock at a price greater than the market price.
Stop loss: It is a price that the investor sets to limit his/her loss. For e.g. If an investor has bought a stock for INR 100, they can only bear a loss of INR 2 so they can create a stop-loss order that will be executed automatically when the price of the stock falls to 98. Thus limiting the loss.
Margin order: Margin is the credit that you get for investing in the market. Upstox gives a 2x margin on intraday orders. For instance, if you are confident about a particular stock which is trading at a price of 100 rs and you have 10,000 INR in your account, by using the margin facility you can buy shares worth 20,000 INR hence making more profit.
Square off: It basically means the closing of an opened position. If the position is a buy position, you can square off by selling the bought shares. If the position is a sell position, you can square off by buying the sold shares. Yes, you read it right, you can sell a share before buying it. This is known as short selling a position in trading terms.
Intraday order: It is a type of order which can be run only for one day. The stock market starts at 9:15 am and ends at 3:30 pm. By selecting an intraday order, you can run that position only for one day. The trade will be auto squared off at the end of the day.
Delivery order: It is a type of order which can be carried for as many days as you see fit so as to book a bigger profit.
Portfolio: Your collection of stocks owned makes up your portfolio. You can monitor your profit and loss in your portfolio.
Dividend: A portion of the company's profit that is paid to the people who hold the stocks of that company is called a dividend. Rakesh Jhunjhunwala earns dividend worth INR 150-200 crores every year.
To make a perfect trade there are two aspects you should look in to buy or sell a share, those are:
Technical Analysis: It is a method to predict the direction of the market or price of the share using the past data with the help of candlesticks.
Fundamental Analysis: The price of the share can also be predicted by analyzing the fundamentals of the stock like the profit/loss or the revenue of the company.
Additional points to remember
To start small
You should always start small if you are a beginner until you are confident about the market and your investment. Once you get a hang of the market, you can slowly increase your investments. Beginners are always recommended to start with blue-chip shares. Blue-chip shares are the shares of the company with good fundamentals over the years, for eg Reliance Industries.
To set an investment goal
You should always have a goal in mind about what kind of investments they are looking for. If you want to earn fewer profits by holding for a short span or big profits and dividends by holding an investment for a huge span of time.
Research before investing
You should always research the background of a company you want to invest in. You can look into the fundamentals of the company by analyzing their quarterly results. You can also analyse technically using various chart patterns to see the near term and long term sentiment of the stock. A stock with good fundamentals gives a decent amount of return on investments.
Always keep a track on the portfolio
You should always look after your investments. If the stock is underperforming and not living up to the expectation you should exit and invest in some other stock with the proper research. The best way is to use an excel sheet to keep an eye on your investments.
Always have an exit strategy
You should always know when to get in and when to get out of the investment. Though the plan might be to earn profits, sometimes you should also cut losses and exit a stock in a market with the downtrend. A strict stop loss is very essential or it will be just gambling with your money.
The stock market is a big ocean, there is always more and more to learn every day. You can learn technical analysis which is the most important aspect of stock market trading. You should keep reading investment books. Few books that I would recommend are:
"Rich Dad Poor Dad" (1997) by Robert Kiyosaki
"The Essays of Warren Buffett: Lessons for Corporate America" (1997) by Warren Buffett
"Beating the Street" (1993) by Peter Lynch
"The Intelligent Investor" (1949) by Benjamin Graham
Start investing in the stock market as we are in the golden era of the market right now. Investors have earned up to 50% of their investments in the last 3 months which is almost 10 times more than any bank's rate of interest per annum. I am sharing a link to open a trading account, open an account in 5 minutes, and start investing. Happy Investing and stay tuned to learn more about the share market.
Cover Image: Portent