However, financial literacy is one of the most empowering knowledge you can have and use in your daily life.
This article is a step-by-step guide on how to start making investments in an informed and conscious way.
Before you start trading and investing, knowing how the share market operates is essential. There are two main market operations when it comes to stocks and shares:
This is the market space where companies make their financial securities available for purchase and selling to the public. This is known as IPO or Initial Public Offering. Here, the transaction occurs between buyers and sellers directly with the issuing companies.
This is where you, as an investor, can buy or resell shares that have been issued in the primary market from other investors instead of the companies directly. A stockbroker facilitates this secondary trading. This is also known as the aftermarket.
Generally, most trades occur in the secondary market as the securities sold here are fungible. This means the securities of the aftermarket are equally good and, as a result, replaceable.
However, share market trading in either market can be lucrative depending on your own goals, investment, and risk tolerance.
Once you know the two marketplaces that you can trade in, it's time to actually get into buying and selling shares. Here's how you can do it:
This is the entry point to any share market. This is your brokerage account, without which you cannot trade and invest in the stock market. This works similarly to your regular bank account but for the securities you buy instead.
Prices of stocks and shares are always fluctuating, and the share market is never stagnant. They depend on the demand at a given time, the supply available, the company's profits, etc. Once you know how prices are set, you can make better decisions regarding the kind of shares worth purchasing for you and at what price.
A bid is the most money a buyer is willing to purchase a share for. On the other hand, an ask is the lowest price a seller is willing to set for a given share or stock. Awareness of these prices and what makes sense is necessary to get your money's worth.
These are two analytical methodologies employed to predict the trends of stocks and plan your trades accordingly. In Technical analysis, the volume chart and past prices of a particular share are taken into account to predict its potential in the future.
In fundamental analysis, however, you evaluate a stock's intrinsic value. This is the price that any reasonable investor would be willing to pay for a share or investment after assessing its risks. This may or may not be the same as the stock's market value.
The share market is always volatile, and it's always wise to know how to protect the eggs in the bag. Beginners may get carried away and invest too much on their first go. However, it is necessary to know your risk tolerance. You assess this by evaluating the maximum amount of money you can risk and accept if it were to end in a loss. That's where you put a stop price to prevent further losses.
There is no better way to learn how to do trading online than to ask someone well-versed in the field. Stockbrokers and other express agents can guide you through the different companies and their shares and analyze your unique investment goals to help you trade in the right place at the right time.
It's always better to start small and eventually build up to larger capital stocks. A big loss of capital at the very beginning can be very disheartening and deterring. Opting for safer bets is the rule of thumb for beginners.
Whether you're trying to build a diversified portfolio as an investor or simply trying to supplement your income during times of inflation, the share market is large and has space for all levels of investments. You can start as small as Rupees 500 and build from there. Consult our team at Sharekhan for advice from the best brokers to get you started today!
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