If you are looking for avenues to increase your wealth, chances are that you have considered investing in stocks as well. The stock market provides a plethora of opportunities for everyone from newbies to seasoned investors to multiply their wealth. By investing for the long-term, you can generate inflation-defying returns and secure a financially stable future.
For new investors, the scope and complexity of the stock market can seem extremely daunting. Opting for stock market courses in such a scenario can be beneficial for users. However, if you choose to learn about the stock market without the help of a course, this post is for you.
We will be covering the most important stock market basics in the following sections-
What is the stock market?
The stock market is a complex and dynamic phenomenon. You can trade not only in a company’s shares but also in other financial instruments like bonds, mutual funds, derivatives, etc.
A stock exchange is a platform where the securities of various companies are accumulated. You can trade in stocks only if they are listed on a stock exchange. There are two main stock exchanges in India- the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
What is the share market?
You can only sell and purchase shares in this market. The share market is two parts-
1. Primary Market
This is the market where companies raise money for growth, expansion, and debt repayment. A private company either becomes public, or a public company issues a fresh set of shares. In both cases, the issue of shares is called an IPO, and the investors own a small percentage of the company.
The prices of the shares are set by the company.
2. Secondary Market
Investors buy and sell existing shares amongst themselves. The prices are set according to the supply and demand for the shares in the market.
High-performing companies have higher share prices than others.
How to start trading?
To continue with our list of stock market basics, let’s see how you can start trading in shares. You will need to approach a broker, like Angel One, and open demat and trading accounts.
1. Stock Broker
A stock broker is an institution or individual who can give financial advice on matters of investment and manages investment portfolios. They can also carry out sale-purchase transactions on behalf of investors.
Brokers connect investors with companies looking to raise money in return for a brokerage (fee).
2. Trading Account
The sale and purchase of securities are facilitated by a trading account. It acts like an interface for securities transactions and links the bank and demat accounts.
3. Demat Account
Demat account is used to store financial assets, like shares, in electronic form so that there is no hassle of storing physical documents. A demat account also mitigates the risk of theft and fraud.
For opening demat and trading accounts, you need to submit bank account and PAN Card details.
What is SEBI and what does it do?
Since the stock market involves a lot of risks, it is regulated by a government organisation called SEBI. They work to ensure that companies do not commit fraud, strictly follow guidelines for raising funds, and protect investors.
We have covered some of the most important stock market basics that you should be familiar with before kick starting your trading journey.
You can now start trading!