Retail investors have the option of investing in financial instruments with the aim of making a profit by day trading or increasing their wealth over time through long-term investments. To invest in the equity market, you need to have a good understanding of business fundamentals and the intricacies and techniques of the market.

This article summarizes the most important aspects of the stock markets and offers practical initiatives to help novices understand and begin their journeys in the financial market without fear or confusion.

What are stocks?

Stocks allow you to buy ownership in a company. Stocks are a great way to become a shareholder. You can benefit from capital appreciation and dividends, as well as other rewards. Stocks are classified by their type.

Market capitalization:

Market capitalization is used to categorize companies, for example: 1) Large-cap (top hundred companies)

2) mid-cap (top 101 – 250 companies)

3) small-cap. (companies ranked 251 or higher)

Ownership:

Once you buy shares, even if it is just one, you become a shareholder in the company. You can vote and participate in corporate actions if you own shares.

Shares are the most common type of investment.

1) Common shares (has voting rights)

ESOP (employee Stock Option Preference)

3) Preferred Shares (have no voting right)

Strong Fundamental Stocks:

Fundamentally strong stocks are those companies that have shown good performance in the last few years. These stocks are known for being highly stable and able to generate consistent returns over time.

For example, the stocks in Nifty50 (Zomato) and Sensex Trent are considered to be fundamentally strong because they have performed well in previous financial years.

High Volatility stocks:

Stocks with a large daily trading volume are known as high-volatility stocks. Their high price fluctuation during trading hours provides liquidity for investors and traders.

High Dividend Stocks

High-dividend stocks have a high yield, which indicates that the stock pays dividends compared to its CMP.

What is a Stock Market

There’s a slight difference between the terms “stock” and “share” market. A share market is a market for trading shares. However, a stock exchange includes a wider range of financial instruments such as bonds, mutual funds and derivatives.

Both platforms have an exchange where buyers, sellers and companies exchange ownership stakes of companies.

How does the stock market work?

A company can raise funds by selling new or existing shares to investors and the general public through an exchange such as the National Stock Exchange or Bombay Stock Exchange. The process starts with Initial Public Offerings directed at the primary market.

Investors buy shares, and as companies grow, their value increases, resulting in capital gains. Some companies also pay dividends, which are profits that they give to their shareholders.

Shares are then traded on the secondary market, where investors trade shares through brokers with other investors without regard to the company issuing the shares.

Stock prices are determined by supply and demand due to factors such as economic reports, a company’s productivity, or current market conditions. In the past, the stock market had an average annual return of around 10%, which shows that it is a good tool for creating wealth.

Why companies use the stock market

These firms use the public stock market to raise capital. You and I can purchase shares in these companies while the investors receive a share of the company’s wealth and dividends. This allows us to gain wealth in the capital markets.

Many businesses incur debts and repay them with capital below the minimum required. Some companies may be able to get by on the income they receive from selling their goods or services, but many others will need additional help to cover their working capital needs or to grow.

Key Stock Market Term Used by Traders & Investors

• Sensex is the benchmark index of the BSE, which represents the 30 largest stocks by market capitalization.
• Nifty 50: India’s Benchmark Index measures the 50 largest companies listed on the NSE based on their free-floating market capitalization.
• SEBI: The Securities and Exchange Board of India is the Indian market regulator.
• Demat account: A form of electronic account for holding securities.
• Stock Index: A measurement of market performance.
• Bull Market: Rising stock prices and economy.
• Bear Market: Slowdown in the economy and falling prices.
• Bid price: The highest bid price that a buyer will offer for a particular stock.
• Ask Price: This is the lowest price at which a seller will sell.
• Dividends: Profits shared with shareholders
• Equity: The value of an investor’s stake once debts have been paid.
• IPO: The first sale of shares by a company to the general public.
• Moving Average: Technical indicator to analyze price trends.
• Call and Put Options: Contracts derived from underlying assets such as stocks or indices.

How to start trading stocks

Stock trading can be thrilling and lucrative. However, success is only possible with preparation, knowledge, and discipline. Here is a guide for beginners.

Step 1: Determine Your trading style

Determine your trading strategy based on factors such as your personality, your risk tolerance, your time commitment and your goals.

Day Trading

• A single day of buying and selling stocks or derivatives that results in high risks & high rewards.

Swing Trading

• Stocks or derivatives held for a few days to a few weeks can result in moderate rewards and moderate risks.

Position Trading (Long Term)

• The risk and reward of holding for many years is always lower.

Open a Demat Account and Brokerage Account

You’ll need both a Demat and brokerage account to trade. It’s easy:

• Provide personal details (name, address, ID).
• Select a type of account (individual or joint) or retirement, such as an IRA.
• You can fund your account by bank transfer, check, wire or bank.

Step 3: Research Brokerages & Platforms

Choose a brokerage that offers tools tailored to your needs

• Day traders: Low latency, real data and advanced charts are priorities.
• Swing traders: Research tools and mobile applications are a must for you.
• Long-term investors: choose educational resources. Compare the charges, usability and reputation of products before you commit.

Step 4: Research stocks

• The following methods can be used to analyze stocks and other financial assets.

Fundamental Analysis:

• For long-term decision-making, assess the financial health of a company (earnings and debt, growth).

Technical Analysis

• Short-term traders should study price patterns and indicators, such as moving averages or RSI.

News & Sentiment

• Market events and earnings reports should be monitored. Diversify your investments across industries and regions to minimize risk.

Step 5: Place your trade

Execute trades through your brokerage when you have a good understanding of all the risk factors.

Market Order

• Market orders are Buy/Sell orders that you place at the current market prices for a quick and immediate trade execution.

Limit Order:

• Limit orders work by defining a price at which an order will be executed.

Stop Order

• A stop loss order is an order that limits losses.

Step 6 – Manage Risk

Stop-Loss Orders:

• Stop loss orders will automatically close a trade when the loss level is reached.

Position Sizing:

• Each trade should not exceed 1-2% of the capital in your trading account.

Risk-Reward Ratio:

• You should aim for gains that are greater than your losses (1:2, 1:13).

Diversification:

• Diversify your investment to reduce concentration risk.

Emotional discipline:

• Avoid fear- or greed-driven actions to be included.

Beginner’s Tips

Stock Quotes in

• Understanding how prices change with the market, supply, and demand will help you identify entry/exit points.

Set Stop-Losses:

• Stop loss is a way to minimize losses in volatile markets.

Start small:

• Test your strategies using low-risk stocks and less capital before you scale up.

Seek advice:

• You can consult experts to help you navigate the unpredictable market changes.

Conclusion

India’s economy and its BSE and NSE stock exchanges offer great opportunities for wealth creation. Success in intraday trading or long-term investment depends on a thorough understanding of stocks, markets, and terms and a disciplined follow-up process.

Risk management, selecting the right style of trading, opening accounts, conducting research, and executing trades. You can achieve financial stability with the right combination of preparation and long-term outlook on the financial markets.