It is an open secret that wealth creation requires prudent investments. One way to grow your wealth is to invest in the share market in stocks of various companies. That said, as a beginner, before you make share market investments, it is vital to understand it better and make meaningful decisions. This blog will help you understand the share market.
What is a Share Market?
As a beginner, before you start share market trading and invest in shares, let us understand what a share market is. A share market, also called a stock market, is a platform where buyers and sellers trade in shares of publicly listed companies. Regulated by the Securities and Exchange of India (SEBI), the share market connects investors looking to purchase shares with those who want to sell them.
Types of Share Market
Share market is primarily of two types, namely:
Primary Market
The primary market is where companies issue shares to investors for the first time. This happens through an initial public offering (IPO).
Secondary Market
The secondary market is a market where trading of existing shares takes place. It is in the secondary market where buyers buy shares and sellers sell them.
How Share Market Works?
To understand the working mechanism of the share market, you need to know about its key participants. These include:
Stock Exchange
The share market allows you to trade in stocks and other financial instruments. Stock exchanges facilitate this trading. In India, there are two prominent exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Stockbrokers
Stockbrokers are professionals who execute orders on their clients’ behalf. They execute buy and sell orders for a fee or commission.
Investors
Investors purchase companies’ stocks and buy or sell them through trading.
Once a company’s stock gets listed on exchanges, they are traded in the secondary market through brokers who act as middlemen between investors and exchanges. Once you place a buy order for a stock, your stockbroker passes it to the exchange.
The exchange searches for the sell order of the same stock. When the seller is found, a price is finalised for the transaction, after which the exchange communicates this information to the broker. These happen in real-time. The exchange also confirms the buyers’ and sellers’ details to avoid default, after which it facilitates the actual ownership of stocks from the seller to you (the buyer).
What is Delivery Trading?
In delivery trading, investors buy shares to hold for a longer term rather than for immediate resale. This strategy allows for capital growth and dividend earnings over time. It differs from intraday trading, where shares are quickly bought and sold, often within the same trading session.
How to Start Investing in the Share Market?
You need to open Demat account online and a trading account to start share market investments. While a Demat account holds your stocks in an electronic format, a trading account allows you to buy and sell shares. You can open both through brokerage firms by providing a few essential documents related to your identity and address, such as a PAN card, Aadhaar card, passport, driving licence, etc.
Once you provide these documents and fill out the application form, you will receive confirmation about your account and the required credentials in your email in a few days. A hard copy of your account is dispatched to your registered address. While a Demat and a trading account can help you invest in shares, there are certain essential considerations. These include:
Start Small
As a beginner looking to get started with share market investments, it is vital for you to start small to test waters. Begin with a small amount and see how your investment performs. If it performs well, you can increase the amount gradually.
Practise Mock Trading
Mock trading is another way to learn the nitty-gritty of share market investments. Many apps allow you to practise trading with virtual money before getting into real trading. This can help you better prepare mentally before getting into actual trading.
Start with Safer and Relatively Stable Stocks
As a beginner looking forward to investing in the share market, it is wise to start with safer and relatively stable stocks. Generally, stocks of large companies are more stable in nature. These large companies enjoy investors’ trust and have an experienced management team and solid balance sheets that lend stability to their stocks. To put it otherwise, they are better structured to weather market volatility.
Learn, Learn and Learn
There is no substitute for knowledge, and stock markets are no different. Get as much knowledge as possible about various aspects of the share market from multiple sources.
You can read books and watch financial channels where experts explain different aspects of markets in a simple and lucid manner. You can attend webinars and workshops to boost your knowledge about markets. Ample material is available on the Internet from where you can gain knowledge. Seek expert opinion whenever you are in doubt.
Avoid Acting Under Impulse
Stock markets are inherently volatile, and they will test your patience. It is essential not to panic when markets are volatile, and your investment may see a dip. Do not act under impulse and make rushed decisions. Doing so can result in more harm than good.
Remember time in the market is more important than timing the market. In the past, share markets have rewarded those who have had the patience to stay invested amidst turbulence.
Conclusion
Before share market investments, it is vital to do your homework well. Know the goal and invest accordingly. Understand that share market investments are no shortcut to money-making, and building wealth requires patience and discipline. With the right approach and guidance, you can make investments that can help in capital appreciation in the long run.
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