How the Stock Market Works: A Beginner-Friendly Guide
At some point in time, we are all curious to know the actual framework behind the stock market workflow procedure. But not everyone has the correct and appropriate knowledge on the topic. According to Upstox, young investors (under 30 years old) increased their share of all investors from 29% in FY19 to 48% in FY23.
Many investors who just wish to begin with trading or investment get confused by the lack of technical knowledge and jargon. The big chart numbers and patterns also seem scary for newbies.
In this article, we’ll break down the fundamentals related to the stock market to help you gain confidence in trading. Stick to the end of the article to take initial steps into the trading world.
What is the Stock Market?
The stock market is a platform with complete accessibility to all kinds of publicly traded companies. Individuals can use the stock market to buy or sell shares. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are two major exchanges in India. With investment in stocks, you’re technically purchasing a small stake in the specific organisation.
Which Terms Are Essential for Stock Market
- Stock/Share: These are considered units to measure the ownership in a company, as stocks are assigned to buyers.
- Broker: This is an actual place allowing stock market beginners to buy or sell stocks.
- Demat Account: It is a digital account that holds all stocks or shares in which you’ve invested. As per Business Standard, Indian demat accounts have risen to 192.4 million, which is quite huge considering earlier numbers.
- IPO (Initial Public Offering): IPO means that a company is selling its stocks to the general public for the very first time.
Steps To Start Trading/Investing In India
- Step #1 – Open a demat and trading account backed by a SEBI-registered broker. This account will be a single place holding all your shares digitally.
- Step #2 – Learn how the market works, limit orders, and stop-loss functions before making the initial trades.
- Step #3 – Start with small investments to gain confidence and knowledge.
- Step #4 – Avoid putting all investment in one stock, as it can be risky for market downfalls.
Common Mistakes Beginners Make in Stock Investment
- Start investing without prior knowledge or research
- Not choosing the right time to make an investment
- Following anyone’s tips without credible sources
- Ignoring smart investing and risk management
Final Comments
Hence, the stock market is only complicated if you do not understand the fundamentals. Start small, learn consistently, and showcase discipline to achieve financial growth and control.
Frequently Asked Questions
Why should I invest in the stock market of India?
The stock market is one of the key sources to help grow your wealth and increase savings. Rather than just keeping money in the bank, it’s much more helpful to own growing company shares. Starting stock market investment will surpass inflation and build long-term wealth to fulfil financial goals.
What are some risks involved in investing in stocks?
The stock market comes with the uncertainty of going up and down, causing you to lose or earn money in the short term. There can be several risks, such as market crashes, poor company performance, and more. However, with proper knowledge and experience, you can invest in long-term investments and grow your wealth with time.
How much initial money is required to begin stock market investment?
In India, you can start the stock market investment as low as 100 Rs. With plenty of applications and platforms, stock investing is not only for the rich.
How can I find good companies to invest in?
Always look for companies that have financial market strength and consistent growth. Check their profits, leadership, and future plans to understand the business before putting your money into it.
What should I do if the market goes down or crashes?
The first and foremost thing is not to panic in case of a stock market crash. Since these downfalls are pretty common in the stock market, you should see them as temporary. Invest in the long-term objectives and avoid getting emotional when making the investment.
How long does it take for me to earn profits?
Although there is no defined time period to earn profits, the beginners are likely to start gaining profits in months. Some even require years to get fully aligned with the market statistics and growth patterns. The best way is to keep learning and investing instead of getting quick profits.
Disclaimer: This analysis is for informational purposes only. Consult your financial advisor before investing.
Chandan Pathak
Equity Research Analyst