How the Stock Market Work?May 25, 2018(17:07)
Like several investors, you have decided to invest in stock market or might have also picked particular equity shares for your investment. But you are ultimately left with the classic question “how to start investing in the stock market?” Worry not, we got your back! This article helps answer questions like what is share market, how to invest in share market and what are the requirements to invest in share market. Further elaborating on our purpose, this article is a beginner’s guide to stock market facilitating the basic introduction of the markets, equity shares, different types of trades, different types of trading tools and share trading tips.
Open an Account with a Stock Broker
Investors cannot go directly to NSE or BSE and buy/sell stock. They need to do it via an authorized channel called brokers. These brokers are registered and licensed by SEBI (Securities Board of India).
You can easily open a trading and demat account with a stockbroker. Mobile linked Aadhaar card, PAN card and a canceled cheque are the basic documents required to open a trading account. Leading stock brokers also provide a completely online process for account opening. You may select the type of account you wish to open based on your requirement and credibility. For instance, you can open a regular demat and trading account, NRI account or priority account with Karvy Stock Broking Ltd.
What is Equity/Stock/Share?
A company, in order to expand its business or raise funds for a particular project, sells its ownership in form of shares. The buyers of these shares as the equity investors become part owner of the company. It is also a type of security which claims a part of the company’s earnings and assets and is often paid in form of dividends. The company can either privately sell the stocks to other companies or investors. But if the company opens the sale of it stocks directly to the general investors for the first time, it goes through a process called IPO (Initial Public Offer). The IPO takes place in the primary market and the stocks then traded in the secondary market.
Primary Market and Secondary Market
The stock market is essentially divided into the primary market and secondary market. The Primary Market is where the fresh never-traded-before securities are placed. In other words, the primary market is where IPO (Initial Public Offer) takes place, in which new equity shares are bought by investors directly from the company. On the hand, the secondary market, a much bigger and profitable market, is where the equity shares purchased from the primary market is further traded. For instance, if an investor wishes to buy equity shares of Company A which were sold in an IPO for Rs.50 each in the primary market, it can be bought in the secondary market by bidding a higher price on the exchange. The trade will be executed when it matches the sell request of any existing shareowner.
Types of Trade
Every trade of the equity shares is based on the basic buying and selling of the shares. However, they can be distinguished as:
Under delivery trade, the equity shares are bought usually with the intention of investment and held for a sometime before selling it again. This trade can be done on the Indian stock exchanges from 9.15am to 3.30pm. Once the shares are bought, the amount is debited from the trading account on the following day of the transaction (T+1) and the shares are credited in the demat account a day after it (T+2).
Intraday in literal terms means within a day. Thus this type of trade implies both buying and selling the equity shares on the same day between 9.15am and 3.30pm. It is done with the purpose of making a profit from the price movement of the market and equity shares.
Buy Today Sell Tomorrow (BTST):
As the name suggests, in this type of trade, equity shares are bought and then sold on the following day. In this trade, the equity shares are bought as in the delivery trade but are sold before the shares are credited to the demat account. Since the share settlement cycle takes T+2, i.e. two days in addition to the day of transactions, equity shares are not credited in the demat account under BTST.
An ideal trade consists of first buying and then selling of equity shares. However in Intraday trading, one can first sell equity shares and then buy them back. This type of trade is called short selling, which is generally executed to benefit from the downtrend of the market.
How to invest in share market?
Investing in the stock market is easy and with the evolving technology, it is now available at your fingertips. To facilitate easy trade and investments we provide online web trading, desktop trading application and mobile trading application in addition to assisted trading options. But the main concern while investing is what to invest in and to help you with that we have a well-experienced research team publishing over 50 research reports every month including our daily, weekly, monthly, quarterly and seasonal thematic reports.
- Always prefer SEBI and Stock exchange registered market intermediaries
- Ensure clear communication with your agent, broker or intermediary.
- Read all documents carefully before investing.
- Check the company’s credentials, management, and other vital information before placing orders.
- Be cautious of stocks showing rapid ups and downs.
- Make investment decisions with proper research and analysis.
- Don’t deal with non-registered brokers, sub-brokers intermediaries.
- Don’t blindly follow the herd mentality, media reports or speculations.
- Don’t sign/submit any documents without fully understanding its terms and conditions clearly.
- Don’t imitate investment decisions.
- Don’t invest according to emotions.
- Don’t wait and time market.
Vivek Ranjan Misra
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