Investing in the share market is a sought-after and rising investment avenue for most new investors. Historically, investors and traders have garnered substantial returns from the stock market, which is further propelling a new generation of investors to consider share market trading. However, it is critical to know how to invest in stock market for beginners or understand the stock market basics.
Understanding stock trading
Trading in stocks means to buy or sell shares in the secondary market in a given day within trading hours. Simply put, when you purchase a stock and sell it on the same day, it is considered stock trading or intraday trading. As a trader, you could either profit or make a loss by buying and selling on the same day in the stock market, depending on the price movement.
Here, we look into what you need to know before how you can trade stocks as a new investor.
- Demat and trading account
It is imperative to open a Demat and trading account with a well-known stockbroker in India such as Kotak Securities to begin your stock trading journey in the market. A Demat account is similar to that of a savings bank account but holds company shares and securities. A trading account, on the other hand, enables you to buy and sell shares. For smoother transactions, it is recommended to link your savings bank account with your trading account.
- Deciphering stock quotes
Understanding stock quotes is critical before you begin trading in the stock market. Stock quotes reflect more than just numbers on charts and screens. These numbers highlight stock price movements based on market news, technical analysis, fundamentals and more. It is vital to understand when to enter or exit a trade based on stock price quotes.
- Understanding bid and ask price
The price of company stock, in the share market, is determined by the bid and ask price. The bid price is the cost at which a trader can sell shares. On the other hand, the ask price is the purchase cost at which the trader can sell shares. Hence, you can determine your buy and sell orders based on the bid and ask price.
- Fundamentals and technicals of shares
Understanding fundamentals and technicals in shares are crucial criteria before investing. New investors must consider fundamentals such as company profitability, critical ratios, past performance before deciding to invest. Similarly, intraday traders must look into the technical analysis of stocks on stock charts to make the right buy and sell decisions.
- Placing stock orders
Putting in stock orders or knowing how to spot ‘buy or sell’ orders is essential for any new trader in the share market. It is easy to place buy and sell orders on the Internet with the help of online trading services.
- Importance of stop loss
This is singularly the most critical learning factor for every trader, new and expert alike. The importance of stop loss cannot be emphasised enough as it can be the crucial element in preventing a significant loss. A stop loss can protect you from experiencing heavy losses and limiting your damage to a minimum. Trading without a stop loss can be a grave mistake and could result in a complete wipeout of one’s capital.
- Trailing stop loss
While putting a stop loss is vital to prevent losses, a trailing stop loss is just as essential when you are earning profits. With the help of a trailing stop loss, you can sell company stock if it falls to a specific price. This factor is not only helpful in protecting your profits but can also prevent capital erosion if the stock price falls dramatically within a short period.
- Avoiding bad quality stocks
If a company has dubious reputation due to poor management, fraudulent allegations or financial wrongdoings, it must be avoided at all costs. Such companies may show highly volatile moves that could be tempting for new traders. But an ideal policy must be to consider only good quality stocks rather than be lured by promises of quick money.
Investing in stocks is definitely exciting, but trading in them means more than just basic knowledge. It involves commitment, a good deal of research and dedication to look for the right opportunities of buying low and selling high.