An individual gets attracted to the stock market in order to make big money. The best decision an individual can make is to invest in equity stock markets, provided he has patience to deal with the ups and downs that come along with it. So, it is very important for a person to have proper knowledge about stock markets before investing. The stock market is a place where people can make a lot of money and at the same time lose a lot of money too. Different people have different perceptions about stock markets. If you wish to know what opinions people hold about the share market, or you just want to know what is happening in the share market in general, just stand in a crowd and ask ‘Aaj market kaisa hai?’. You will have opinions pouring in from everywhere. You will at least get an idea about how the market has performed during the day. If a person doesn’t have the time to track the market, he can always invest in mutual funds.
Understanding stock markets…
In simple words, stock market is a place where buying and selling of stocks take place. One can also trade financial instruments like bonds, mutual funds, derivatives and currencies in the share market. A person can buy or sell a particular stock only if it is listed on the exchange. The two key exchanges of India are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
There are two kinds of stock market – Primary Market and Secondary Market. A primary market is where a company enters into the market for the first time to get listed in the stock exchange. The company issues a certain amount of shares and raises money from the public. This process is called initial Public Offering (IPO) wherein the company becomes public. A secondary market is where the buying and selling of shares takes place once the company has already been listed on the exchange. This process is facilitated by a registered broker. The primary and secondary markets are regulated by a watchdog – Securities Exchange Board of India (SEBI) which is mandated to oversee the operations by the government.
How to get started?
Choose a broker, There are two types of brokers; full-service broker and discount broker. A full-service broker is the one who charges commission in percentage terms on each trade executed. On the other hand, discount broker is the one who charges a flat fee on each trade executed, irrespective of the value of the trade. A lot of people, especially the youth, are shifting focus from full-service brokers to discount brokers as the discount broking space is fast evolving now.
Open a Demat and Trading Account
Before you start investing, it is very important to open a demat and trading account. One cannot execute a trade without a trading and demat account. A demat account is an account where shares are held in electronic form. A trading account is an account which allows the investors to trade in shares.
Once you have opened your trading account, you need to transfer some funds by linking your bank account to the trading account. There is also an option of transferring money through cheque to your broker’s account offline.
After the funds are transferred, one can start trading and put a trade online or offline. Once a trade is executed, the investor receives a bill and ledger account by the broker. The broker usually sends the bill by end of the day.
Understanding your Risk Appetite
Before one starts investing, it is very important for an investor to analyse his risk appetite. Risk appetite is the amount of risk an investor is willing to take while investing. An investor’s risk profile can be conservative, moderate, moderately aggressive or aggressive. An investor’s risk appetite also depends on his financial position and other financial obligations.