Wise Up
A Beginners’ Guide To Understanding The Stock Market
Whether you’re a first-time investor or a veteran investor – the stock market is an intriguing space for anyone who’s excited about investing.
Today, we’ll delve a little deeper into the stock market, understand its key features, and take a look at how investing in the stock market can unlock a huge earning potential for you.
Let’s get straight into it (something you can’t do with the stock market!).
What is the stock market?
Before we get into the technical definition of the stock market, we want to bring your focus to two words – ‘stocks’, and ‘shares’.
For all intents and purposes – yes – shares and stock are the same thing. They both refer to equity instruments that grant the investor ownership of some units of a company’s financial value. But, in India, according to the Companies Act of 2013, a share is the smallest unit into which the company’s capital is divided, representing the ownership of the shareholders in the company, and can be only partially paid up. A stock, on the other hand, is a collection of shares of a member, converted into a single fund.
This is the only real distinction you need to keep in mind between the two words – stock refers to a cumulation of shares owned by an investor.
Now, as for what a stock market is – In India, the stock market refers to the collection of stock exchanges where these buying and selling activities take place. The two major stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Investing in the stock market can open up new avenues for any investor. But, before you can dive into this jungle, you need to know about some important aspects of the stock market.
Features of the Stock Market
Here are some important features of the stock market that you – a young investor – absolutely need to know about. And no, you can’t just get this information by watching The Wolf of Wall Street!
- Regulation – The Indian stock market is regulated by the Securities and Exchange Board of India (SEBI), which ensures fair practices and investor protection. Every company that is a constituent of the stock market of India has to abide by the rules that SEBI mandates, with no exceptions!
- Diversity – The stock market can offer a wide range of investment options to a young investor. You can choose to invest in shares, mutual funds, and derivatives – all through stock market trading. The disclaimer here is this – be sure to have done your homework before you start investing in the stock market. Why? Because #3!
- Volatility – Prices of stocks can fluctuate significantly in the short term due to various factors like economic news, company performance, and global events – making the stock market an inherently risky place. It is important to understand the risk-reward ratio of any stock you choose to invest in because it will impact your earnings significantly.
- Accessibility – Whether it’s an individual investor or an institutional investor, the stock market is accessible to you, but trade is mostly facilitated through stock brokers, trading platforms, and investment aggregators.
The features of the stock market play an important role in your investment strategy. For instance, knowing what you now know about volatility, you can choose to stay invested for a longer term, mitigating your risk and optimizing your earning potential. Or, you might choose to day-trade, which would require a lot more education and research on your part! Ultimately, knowing about the crucial facets of the Indian stock market will help you trade more effectively, and potentially incur fewer losses.
Which brings us to the most important question of all – how can you invest in the stock market in India?
It can be overwhelming to figure out how to take on the stock market! We find that breaking things down into simple steps is always helpful. And so is a tabular representation of the same! So, here are some steps you need to take that can enable sound decision-making, and some steps that are actionable, tangible parts of the process to invest in the Indian stock market –
Backend Steps | Technical Steps |
Start by learning about the basics of investing and the stock market. There are many online resources, like Deciml’s Wise Up that can give you pertinent information! 😎 | Determine your financial goals and risk tolerance. This will help you choose the right investment strategy. And don’t do this in your head – write that stuff down! 🗒️🖊️ |
Decide whether you want to invest in individual stocks, mutual funds, or exchange-traded funds (ETFs). As per usual – diversification is often recommended for beginners. 😇 | You’ll need a demat (short for dematerialized) account to hold your shares in electronic form. You can learn all about the demat account here. 🔐 |
Begin with a small amount of money that you can easily afford to invest. You can gradually increase your investments as you gain experience – but take your time! 🤓 | Be aware of the risks involved and use strategies like stop-loss orders to limit potential losses. This means seeking out important details of any shares you want to buy! 🌵 |
Overall, we can also tell you this – it helps to keep up with financial news and the performance of your investments, and of the companies whose shares you’ve bought. Regularly reviewing your portfolio and making adjustments as needed is the sign of a smart investor!
It also helps to remember, as a general rule, that stock market investments are likely to be more rewarding over the long term, so it can be good to practice some discipline when trading in the stock market to avoid the temptation to make quick profits through frequent trading.
For young or inexperienced investors, we always recommend starting your investment journey with mutual funds and SIPs, and gradually moving into the stock market, as you know more and more about it.
FAQs
- What is the stock market?
The stock market refers to the collection of stock exchanges where these buying and selling activities take place. The two major stock exchanges in India are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
- How to invest in the stock market?
To invest in the stock market, you need to first own a demat account, which allows for the electronic trade of shares. You also need to conduct thorough research before investing and need to be wary of the risks that come with it.
- What are the best stock market apps in India?
Some of the most popular stock market apps in India include Zerodha Kite, Upstox PRO Trading App, and 5 Paisa.
- Which are the best stock market books for young investors to read?
‘The Intelligent Investor’ by Benjamin Graham, ‘The Warren Buffet Way’ by Warren Buffet, and ‘Learn to Earn’ by Peter Lynch and John Rothchild are good reads for stock market novices.
- What are the Indian stock market timings?
The stock market timings in India are generally from 9:15 AM to 3:30 PM (IST), Monday to Friday.
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