By listening the word Stock Market you may be scared away most of your life by thinking I’m not a CA, what if I lose all my money etc., and you are right some people have lost everything they own in stock market but it also made some people very rich, for example Rakesh Jhunjhunwala started with 5000 rupees but now he has a net worth of 31,000 crores (as of May 2021), Dr. Vijay Kishanlal Kedia is an investor since he was 19, he started with 35,000 rupees but now he has a net worth of 500 crores (as of March 2021), Jatin Khemani brought his first stock at 21 and now he had generated 900% returns in 4 years (as of year 2017).
Beginners basically want to kill the market with no preparation on the first day itself. This is the reason many of the beginners lose their money and exit the market with the empty pockets. If you don’t want to make the mistake that every other beginners do, you need to have a strong knowledge about technical platforms which gives you a idea about what is happening in the market and also most importantly you need to be with patience.
So, let’s get started with how to make money in the stock market.
1. Why invest in stock market?
The adult life is about two things:
1. Dreams: Starting a business, buying a car, house etc.
2. Responsibilities: Paying bills, expenses, marriage, planning for kids’ future, etc.
A 9-7 job barely meets your responsibilities, and you have to forget about your dreams no matter how hard you work. To fulfill your dreams, there is an only a way left is Investing Smart. If you invest in FD, you will get barely 5-7% of returns, but if you invest in a good company, then stock market will give the profits of 14-20%.
2. What is the stock market and how does it work?
Here are the six concepts which you need to know before understanding what is stock market:
1. Shares: A share is a unit that represents part ownership of a company. When you buy shares of companies like ITC, Asian Paints, TCS etc., you will become an owner of that company it might 0.0001% of the share but still you are a part of it.
When you are buying the shares of a company, you not only share the goodwill but also sharing risk with them. The good thing is if the company you invested in performs well, then automatically it increases the price of your stock value. As well as you have a bad thing, if the company you choose doesn’t perform well, it decreases your stock share value.
Hence proved if you want to make money in the stock market you should not take the rash decisions. You should learn:
- How to identify the good companies
- Reduce your risk
- Invest Long Term
2. National Stock Exchange and Bombay Stock Exchange (NSE & BSE):
Stock Market is just like a Vegetable Market where people buy and sell vegetables, people who want to buy and sell stocks of a company go to a stock market. In India, the National Stock Exchange has around 1,600 companies registered with it and Bombay Stock Exchange has around 5000 companies registered combining both forms the stock market. You can’t physically go to the stock market, you can access it electronically through your laptops, and smartphones etc. with the help of registered intermediary called stock broker.
3. SEBI: Securities and Exchange Board of India
Where there is a money, there will be thieves. SEBI makes sure that people like us are not cheating in the market. Stock Market has a set of rules and regulations which are mandated to follow, if you’re not followed, you’ll be flagged by the SEBI.
4. DEMAT Account and Trading Account:
To do transactions in the stock market, you need to have two types of accounts:
- Trading Account: It is used place buy and sell orders in the stock market, whenever you want to buy some stocks then that amount will be debited from your trading account, similarly when you want to sell shares then that amount is also transferred back to your trading account.
- DEMAT Account: It acts as a digital wallet, where your shares are stored.
5. Stock Brokers:
If you want to do a transaction in stock market, you need to have a stockbroker. They are like your stock market best friends, because they will help you in:
- Setting up Trading and DEMAT Account
- Provide trading terminal either through a website or an app
- Investment Tips or Tools
Stock brokers charge some fee for their brokerage, all the stock brokers operate under SEBI guidelines. There are many Stock Brokers in the market. You need to pick the best depending on how many people use it, how popular it is, who provides the best tools, who charges the less brokerage fee, etc.
6. Stock Market Index:
It’s not possible to check index of each any every company to determine the state of the stock market. You should pick key major companies and check their status and if majority of the companies status is going up, then you can say that stock market is up but if majority of stock prices are down, you can say that stock market is down. These few major companies that you used to determine the health of the stock market form the stock market index.
In India we have two major indices/index: SENSEX and NIFTY
SENSEX has 30 major companies from BSE and NIFTY has 50 major companies from NSE. An index is a barometer for every trader and investor because the intension is to outperform and the index also acts as a barometer for the country’s economy too.
What is the Stock Market?
The stock market deals with the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly held companies take place. Such financial operations are conducted through institutionalized formal exchanges or over-the-counter (OTC) marketplaces which operate under a defined set of regulations. There can be multiple stock trading venues in a country or a region which allow transactions in stocks and other forms of securities.
Stock Market has two major participants:
Long-term Investors: Identifying good companies and holding their stocks for years, hoping their value will increase over-time.
Day-Traders: Buying and Selling Securities on the same day or within a week, with the goal of making profits in short time. Learn Day Trading by clicking here.
How stock market works?
Every company that wants to raise capital will decide to go public by offering few of its shares to the stock exchange. Once the company gets listed in the stock exchange, people start buying and selling that company’s share regularly with the intension of creating profits.
Now, the price of the share goes up and down because of three things:
- Different point of views: Different people have different opinions on a particular company, where one chooses it to buy by thinking it performs well and one sells it by thinking it not performs well, which creates demand and supply situation that moves the share price.
- News: If there’s positive news about a particular company like it made huge profits in the last quarter or if it hired a good CEO, the share prices go up and vice versa.
- Events: Company stock prices and the stock market can be affected by world events such as war and civil unrest, terrorism and natural disasters.
3. How to pick the best stock broker?
If you want to open an account, you need to have a stockbroker. There are two types of stock brokers:
1. Full-Service Brokers: As the name suggests, they provide you with its full services like:
- Opening DEMAT account
- On-call Service
- Daily Trading Tips
- They have offices across country
For this they will charge you a nominal registration fee between Rs. 300 to Rs. 500 and also they will charge 0.3% to 0.5% brokerage fee for every transaction you do. Brokers like ICICI Direct, Motilal Oswal, Kotak Securities etc. are the example of full-service brokers.
2. Discount Brokers: These brokers do not have many offices but provide services with three main advantages:
- Setting up DEMAT and Trading Account.
- They provide easy-to-use trading platform, where users can easily buy and sell their stocks online using your laptop or smartphone.
- Provides Investment Tools, Analytics and Educational guides that help you learn more about stock market investments.
Discount Brokers charge registration fee of Rs. 300 and they charge flat Rs. 20 as brokerage fee irrespective of the transaction amount.
Remember that it’s your choice to choose a broker, whether you want to go to the office of full-service brokers and get things done at a higher brokerage fee or choosing the best technology with various tools and less brokerage fee from your home itself (Discount Broker).
Beginners want to play Stock Market as a T20 match by hitting back-to-back fours and sixers in few overs, but that’s not the thing, stock market is a test match, which is all about staying in the game with the patience. Stock Market makes you money if you first survive in it long enough to learn enough.