Investment has a secret formula – having the right information, proper planning and making good choices. So, you must understand that it’s so necessary for the beginner to know the stock market basics and become an Informed Investor.
The beginners in the stock market always have a lot of doubts and queries. Therefore, most of them are still afraid to take a step in the stock market. But, Investment and Trading in the Indian stock market is not as hard as it looks. In fact, it requires the right knowledge and information to understand the share market. So, this is possible if you are the beginner or newbie investor and you know the stock market basics. Only by then, you can step in with proper knowledge and courage. So, to make things easier, please go through this article where onlinefarrago have discussed Indian stock market basics that every beginner should know.
What is the stock market or share market?
A stock market, equity market or share market is a place where shares of publicly listed companies are traded. This is the aggregation of buyers and sellers of stocks or shares, which represent ownership claims on businesses.
Stock Market Basics – Share Market in India
Nowadays share trading in India regulates in a paperless manner. It is done by Depository service which is a mechanism that makes possible the online trading in shares. Hence, the depository is a link between the shares of listed companies and shareholders.
The Securities and Exchange Board of India (SEBI) monitor the registration, regulation, and inspection of the depository in India.
Read also:Depositories in Indian Stock Market
Read also:Which is better BSE or NSE?
Stock Market Basics – Primary Markets and Secondary Markets
The stock market is divided into two type of market.
- Primary markets
- Secondary markets.
The primary market is where the shares of any company getting newly listed are bought directly from the company through the stock market. A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO).
Once new shares have been sold in the primary market, these shares are traded in the secondary market. The traders and investors are then allowed to purchase and sell the shares of a company after they are listed on the exchange; it is called the secondary market.
Stock Market Basics – Stock Indices in Indian Stock market
A stock market index captures the behavior of the overall share market. Therefore, the rise and fall of an index reflect the changing scenario of the Indian stock market.
Different companies from similar sectors are grouped commonly to form an index of that sector. In India, we have SENSEX and NIFTY as the benchmark index for BSE and NSE respectively.
Other Indices for BSE:
BSE 100, BSE 100, BSE 500, BSE PSU, BSE MIDCAP, BSE SMLCAP, BSE BANKEX, BSE Auto, BSE Metal, BSE Pharma, BSE FMCG, etc.
Other Indices for NSE:
NIFTY 50, NIFTY NEXT 50, NIFTY 100, NIFTY MIDCAP 50, NIFTY SMLCAP 100, NIFTY BANK, NIFTY AUTO, NIFTY FIN SERVICE, NIFTY FMCG, NIFTY IT, NIFTY METAL, NIFTY PHARMA, NIFTY REALTY, NIFTY PSU BANK, NIFTY PVT BANK, NIFTY COMMODITIES etc.
Stock Market Basics – Trading account and Demat Account
Trading account and Demat Account are two very important stock market basic concepts for the beginners. Let’s have a quick look.
Trading account is very similar to a bank account that provides a common electronic platform to buy or sell shares/securities/bonds.
Therefore, to conduct online transactions in the stock market, you have to register with stock-exchange. Therefore, you need to open an account with any stock broker or firm that trade on your behalf in the stock market.
The Demat account is a platform that allows investors to hold shares/securities in an electronic format. Stocks in Demat account placed in the dematerialized form. So, this is similar to a bank account where you hold your money and respective transactions in bank passbook. Financial transactions for shares/securities in the Demat account, are held in electronic form.
To know how the Trading and Demat account works in share trading and how can you open a Demat account to start trading in Indian stock market. So, please visit the link below –
Stock Market Basics – Share trading account in India
A share trading account is a platform from where you can place buy or sell orders for shares in the stock market.
In India for Share trading, you need 3 types of accounts –
- Trading Account to place buy/sell orders.
- Demat Account for holding shares in dematerialized form.
- And finally, a Bank Account for fund transfers.
Now, the question is how you can open a share trading account. To understand the process step by step, please visit the link below.
Read also: How to open a share trading account?
Stock Market Basics – Full-service brokers and Discount brokers
It is very important that you have to select the registered stock broker to start investing in the stock market.
There are two types of stock brokers in India:
- Full-service broker (Traditional broker)
- Discount broker (Budget broker)
Full-service brokers provide trading, research, the advisory facility for stocks, commodities, and currency. On the other hand, Discount brokers provide necessary trading facilities but no advisory in the least possible cost in stocks, commodities, currency, and derivatives.
To know more about Full-service broker and Discount brokers, please visit the link below.
Tips for share trading in India
Do’s for share trading in India:
- Always prefer the SEBI/Stock Exchange registered market intermediaries.
- Before investing carefully read all the offer documents and the risk disclosure documents.
- Make clear communication with your agent, broker or intermediary.
- Check all the necessary information about the company before placing any buy or sell order.
- Be cautious of highly volatile stocks.
- Make investment related decisions with due diligence, proper research, and analysis.
- Become Cautious about any global news. Because the Indian stock market always affected by the global economy.
Don’ts for share trading in India:
- Don’t let emotions of greed and fear overshadow your wisdom.
- Never deal with agents, brokers, firm that is not registered with SEBI or the Stock Exchanges.
- Don’t blindly follow any media reports or speculations for share transaction.
- Don’t execute any documents without fully understanding its terms and conditions clearly.
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