How I Started Trading In Stock Market? The Basics of Investing In Stock Market
Disclaimer You should not buy shares, or its futures or options, unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges
We all know Warren Buffet is one of the most successful investors of all time. He runs Berkshire Hathaway and is the fourth-wealthiest person in the world. Inspired by him, I slowly get interested in the stock market.
All apart, there is no shortcut to anything. You have to go in-depth and study about it to understand what it is actually. In India, people have almost no financial knowledge and only about 4% of all population actually invests into the stock market. While in the United States, for example, over 50% of the population invests into the stock market.
What Is Stock Market?
In simple term, the stock market is a collection of markets and exchanges where regular activities like buying, selling and issuance of shares of publicly held companies takes place.
The stock market is the market where you simply buy and sell shares of the company and doing so, you need a broker. The stock exchanges also support various other transaction-related, corporate-level activities. For example, the companies which are profitable may reward investors by paying dividends which comes from the company’s earnings.
Let’s cover up the terms related to the stock market. It is important to understand these terms to get yourself started to invest in the market.
To buy and sell shares, you need to have licensed professionals. They are registered representatives and act as intermediaries between the stock exchanges and investors by buying and selling stocks on investors behalf. You will need an account with a retail broker to gain access to the market and from there you can actually sell and buy shares from any company.
Below are the recommended stockbrokers and are best in term of brokerage charges and pricing. The Upstox offers to open Demat account for free while Zerodha charges around Rs 200 to open the account.
BSE & NSE
I am pretty sure that you have heard about BSE and NSE before. Isn’t it?
They are just two exchanges in the stock market. The role of exchanges in the stock market is:
- To Safeguard Investors
- To evaluate the stock prices
- Act as a barometer for the country’s economy
- Market where securities are traded
- Broader the range of investment avenues
What Is NSE & BSE?
NSE is short for the National Stock Exchange and was founded in 1992 and is located in Mumbai. The whole concept of electronic trading platform was first introduced by the NSE.
NIFTY is an abbreviation of NSE. It is a benchmark index of NSE comprising 50 stocks.
BSE is short for Bombay Stock Exchange and was founded way back in 1875 and is happened to be the oldest stock exchange in Asia.
Similarly, SENSEX is the benchmark index for BSE. It consists of 30 stocks.
SENSEX and NIFTY are faces of the Indian Stock Market as these either go down or up depending on the various political and economical factors.
Difference Between NSE & BSE
The difference between NSE and BSE lies in features. NSE is known for the Largest Stock Market and the BSE is known for the Oldest Stock Market. The NSE has over 5000+ companies listed while BSE has just 1600+ companies. The trading volume is much higher for NSE and much lower for BSE. Before trading, you can actually compare the stock prices in both exchange and buy. Usually NSE is preferred.
The promoter can either be an Individual or an Organization who helps in raising the money for some type of investment activity. Promoter actually raises money for the company.
For example, I and my 3 friends decide to open a company Emad’sBlog Ltd. and raised Rs 50,000 each one of us. Therefore, we 4 are promoters of the company.
The owner of shares in the company is known as shareholder. Investing in the stock market means you buy a share in the company with the help of brokers. Therefore, to get started with investing and buying your shares in the company, open your account in one of the stockbrokers to get started. It’s pretty simple, click on the logo and you will be taken to the broker website where you can create your own DEMAT account (an account which you use to trade) and by submitting your documents such as PAN, Aadhar, etc.
Once the account is issued, you will be given a portal where you can watch all the companies share prices, and ability to place an order to buy, sell or hold the stocks. You can also do Intraday Trading, Option Trading and much more.
Once your DEMAT account is opened with the Broker, you will be able to buy and sell the shares. Buying the shares in the company will make you the shareholder and when the company profits the shares will increase and you can place an order for selling. In the stock market, you become the shareholder in the company by directly buying the shares while in mutual funds you buy the shares indirectly.
The basics of the stock markets end here. I am sure you’re now familiar with the basic terms of the stock market and how it works.
How You Earn Money In Stock Market? What Is The Process?
I am trying to clear the concept of investing in the stock market and how one earns by investing. It’s not always that each and every company has a higher share price. Britannia Industries is taken as an example. You can start investing in very small amounts as well. The share prices of different companies start from as low as Rs 30 per share.
I will give you a simple example of how you earn through investing in the stock market. Let’s say you’re consuming the Britannia Biscuits like Good Day or 50-50 also you thought to invest money and become a shareholder in their company.
The company here is Britannia Industries Ltd. and you really have good faith in the company because their biscuits are amazing and a lot of people are buying. You dig deep about the company and finds that over 70% of household actually consume their products.
- More people consuming their products means higher sales.
- Higher sales = Higher profits
There are chances of companies not making high sales and getting lower profits or even loss. In this case, the share price also gets low. However, in such cases, you can keep holding the shares for long to make profits.
For example, I noticed and thought about Britannia Biscuits in 2017 and decided to invest in the company. I opened a Demat account with my favourite broker Upstox and invested in the company and became a shareholder in the Britannia Industries by purchasing their shares **@**Rs 1590 in 2017. For example, I bought as many shares as I can i.e, 50 shares at a price of Rs 79,500.
Now after a little period of time, the people consumed more and more of their products and the company grew bigger with loads of profit. Since the profits increased after 1 year, therefore, the share price increased too.
In 2018, I needed some money and decided to sell the shares now to other investors interested in buying. I sold my 50 shares now @Rs 2354 per share.
In short, I invested Rs 79,500 in 2017 and got back Rs 1,17,000.
That’s a whopping almost 50% returns in 1 year.
Apart from this, there is a trade which you have to buy and sell in a day itself. They cannot be carried or hold, such trades are called Intraday Trades or Day Trading.
In such trades, you buy the shares of a particular stocks at low price upon doing your own analysis and then sell the shares when the price of a share goes high within a day.
We have more in the stock markets, such as Options & Futures. However I have covered the Options topic and soon will be covering Futures topic. To read more about Options, visit Options Trading In India.
I hope you learnt the basics of stock markets. I am pretty sure you learnt the whole concept involved in earning through investing in the stock market. There’s always a risk when it comes to investing but not very high. If you start investing and learn more about it then surely you can make money out of it. In the next post, I will share “How To Pick Stocks and Invest In It” soon. Till then, stay tuned.