Corporations issue stocks to raise money from the market. When you buy the stock of a company, you become a part owner of that firm. If the company does well, you can enjoy part of its profits as dividends. Investing in stocks is one of the best ways to create wealth. Learning to make wise investments and preparing an action plan is the primary prerequisite for share trading.
In India, share trading has become a fully online activity. Gone are the days when you had to worry about storing physical shares. All you need for online share trading are demat and trading accounts. With third-party facilitators like Kotak securities you can easily open an account and start trading.
Need help getting started with online share trading?
Here is a quick look at the general concepts that you need to know.
Equity shares
The two biggest marketplaces for equity shares in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). When you invest money on a company listed in any of these stock markets, you are given an equity share certificate. An equity share represents part ownership of the corporation. Your name will be listed as one of company owners.
Primary and secondary markets
The stock-buying process consists of two kinds of markets: primary and secondary markets.
What is the primary market? It is the place where the shares of any new listed company are bought directly from that company through the stock market. The secondary market, on the other hand, is the stock market as we know it. This is the market where most of the action takes place and where winners and losers are decided.
When you buy a share in the stock market, the company gets notified of the change of stock owner. Your name will replace the earlier share owner’s name in the company register of partners.
Intraday trading versus long-term investments
These are the two ways to invest in the online share trading. Intraday trading happens within a single trading day. Here you buy the stock in the morning and sell it by the end of the day. Intraday trading for beginners may seem a risky proposition in view of market fluctuations. But it could be the best way to earn quick money, provided you have a clear action plan of action.
On the other hand, long-term investments are where you buy a stock and keep it safe till its value increases significantly. There may be years between the buying and selling dates. These are comparatively safer if you are looking to invest.
Things to do before engaging in share trading
- Invest in companies that are registered with any of the recognised stock exchanges like the BSE or NSE.
- If you invest via a stock broker, check if that agency or person is registered with the SEBI.
- State clearly how your money should be invested in the stock market.
- Do all monetary transactions through your demat account linked with your bank.
- Check the credentials of a company before investing in it. Read its management statements, financial records, and other important decision statements available in the public domain.
- If you engage in day trading, always remember to set a trailing stop loss.
- Remember that investment in the stock market entails risks. So, it is wise to buy stocks with caution.
- Try to diversify your portfolio with stocks from different sectors to reduce the risk of loss.
Things to avoid when engaging in share trading
- Never engage in investments with unregistered agencies.
- Read the offer documents carefully and do not agree to anything you do not understand.
- Do not take investment decisions based on the ‘tips’ received on social media.
- Don’t buy stocks from a single market segment.
