If you are new to the share market and are confused as to how to begin with share trading, then the article is perfectly meant for you. At first, you need to have a Demat account and a trading account with the broker.
Motives behind investing in share market
Once you are ready with Demat account and trading account with the broker, you can begin trading in the market. But before that just ask yourself that what are your motives behind investing in share market. Let us first understand the motives that one can have to begin investing in the stocks. The first reason is that, equities are known to give rate of return equivalent to the sum total of GDP growth rate and inflation rate. Therefore, investment in equities is one of the best asset class investments to be considered when you want to earn more than the rate of inflation. Second, a desire to earn more than the returns from fixed deposits can also serve as good and valid reason to start trading. Third, liquidity can also be one of the major reasons for investment in stocks. Fourth, a desire to make quick money also boosts the investment in stocks. However, one has to remember that speculating in the market is not always fruitful and that there are stocks in which it is more advantageous to hold them for a long period of time.
Risks of investing in equities
Before you invest in stocks, you must learn that the returns from the investment in shares are not guaranteed. Investment in share market is considered to be risky as the returns are subject to market fluctuations. However, if you have invested in right kind of stocks and at the right time, then the possibility of getting good returns will be on higher side.
With the simplified reforms of SEBI, it has become simple for investors to invest in stock market. The first time investors should play little safe and as such they should not start their journey with derivatives and trading in commodities, rather equities and mutual funds should be their choice. Now when you know the different motives and the presence of risk in the market, you can actually begin with your first steps of trying the market.
- Understand your profile – First of all, identify the extent of risk that can fit in your risk appetite. Remember, there are different investment products and each comes up with different combination of risk and return. Your risk profile will be dependent on two things: risk attitude and risk capacity. Therefore, how much risk you can bear will not only be dependent on your risk choice but also on your bearing capacity. With this identification, you will be able to identify the products in which you should invest and in which you should not invest.
- Identify stocks – This is one of the crucial steps of trading in stock market. A wrong pick might yield you negative results.
- Open a Demat account – For execution of your plan to purchase a share or mutual fund, you need to have a demat account and also a trading account with the broker. You can get the account opened wither online or offline.
- Open a trading account – For trading in the stock market, you need to have a trading account. It allows the traders to buy and sell securities. One can buy securities from the amount that has been deposited by them with a financial institution or with a brokerage firm. Remember that for each transaction, broker will charge commission or brokerage from you.
- Transfer funds that you want to invest – Once you have opened a trading account with the broker and have already identified the stock and the quantity to be purchased, then you will have to transfer some funds in your trading account. This you can do either by linking your savings bank account with your trading account or you can transfer the funds in your trading account through cheque.
- Start trading – Now, since everything is set and there is money as well in your trading account, you can start trading the securities online or offline with the help of your broker.
Though the share trading is simple but it do not end right here. If you have not invested your funds for short period, then you really need to keep a track of the performance of the shares in which you have put your money in. However, as a matter of caution, you should not begin with short term dealings. That is, for some selected stocks, the real gain is in holding them for a long period (if the situation warrants).
Have a happy trading!