Stock market for beginners
The first thing when you begin thinking about the stock market, you imagine hundreds of people bidding on stocks, shouting at everyone, and fighting ferociously with each other. Yet it is not the case for you to invest in the market. You don’t have to go down or even pay a hefty fee for investing in the stock market. There are a few simple things you need to understand and you are ready to go.
But first, you must understand what the stock market really is. Without a basic understanding, you will not be able to grasp what is happening with your money.
What is Stock Market?
A stock market is a place where people buy shares of different companies post-IPO. Simply to illustrate, a person can buy a part of the company through shares.
Where do these Stocks come from?
When companies need money to fund their operations, they sell these stocks to raise funds.
Anyone who thinks that this company will do better in the future can buy this stock.
If a company wants to raise some funds to expand its business, they usually go to banks and borrow money through a loan. But if the fund is too larger, then it takes quite some time to get approved.
So, the other way companies do id, they list some of their shares in public by choosing an IPO.
Where do this buying and selling take place?
These exchanges take place in stock markets. In India there are 23 stock exchanges, among them, 2 are on the national level i.e. Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), and others are on the regional level.
What does Stock price going Up and Down mean?
It is basically the balance between demand and supply. The demand pulls the prices up and supply pulls the prices down. If there is an excessive demand for a stock, the prices will rise; on the other hand, if there is not enough demand yet supply is sufficient or excessive, the prices will fall down.
So when you hear that the stock market is going up means the average price of all the major stocks listed on the stock exchange is going up and that is why people start buying because the prices will rise in the future; similarly in the case of the market going down means the average price going down and will fall down in the future as well.
How to invest in stocks
To invest in stocks, you need to open a demat account.
Zerodha, Groww, and some other are the leading demat exchanges.
6 Tips for Beginners to investing in Stock Market
1) Research before you invest:
Even for the masters who have been in the stock market for decades, it is hard to predict how the market will behave. So before you invest in any company just look at the history of that company. It is hard to predict how the company will do but you can get the basic idea.
For example, if you had invested in Tesla 2 years back, the value of your stocks would have multiplied many folds by now or if you had invested in a company that was about to go bankrupt, your money would go to waste. So you need to study the market. However, you don’t need to be a master in this field just keep a basic track of things and you are good to go.
2) Do not invest in a single stock
More often than not, beginners tend to invest in a single stock and if it goes down, they lose money and get discouraged and leave the trading. To avoid this, you should invest in multiple stocks this will not only give you some shock protection but will also help you practice if you want to invest in the future as well.
3) Keep your portfolio diversified
Putting all your money under one stock is too risky to bear. So, with the capital you have in your hands, try to diversify as many as possible to segregate the risk.
4) Be ready to bear a loss
Being part of the stock market comes with the risk of you losing money but that is part of the process. You must understand that if you are willing to make a profit, you should also be ready to bear the losses.
5) Long term vs short term investments
There are times when you need to choose between short-term investments and long-term investments. Short-term investments are those which you can monetize after 3 to 4 months. On the other hand, long-term investments are those you keep for a longer period of time. Both have their merits and demerits. If you are certain that a company’s stock prices will rise, you can make quick money, but you also have to bear the risk of losing money.
On the other hand, the market tendency in the long term is always skyrockets. So if you have the capability to hold money for a longer period of time, you can get a certain profit from the market eventually.
6) Start as soon as possible
One of the questions beginners ask is what is the right time to start. The simple answer is “Now”. If you are going to wait for the market to be stable or in good condition then you will have to wait forever because there are always fluctuations going on. So to start trading you should start as soon as possible, so you can at least understand the market dynamics and get a good profit.