India has a population of about 135 crores some have knowledge about how to trade in stocks and some don’t have this knowledge and these people can be divided into 3 sections.
1> Who has complete knowledge about the stock market.
2>Who has partial knowledge about the stock market.
3>Who has no knowledge about the stock market.
Hopefully, by the end of this blog, you will be able to know all about the basics of how to trade in the stock market and tips to trade in the stock market.
What’s in it for you….
- STOCK MARKET
- BASICS TO KNOW BEFORE TRADING IN THE STOCK MARKET
- HOW TO TRADE IN STOCKS?
- TIPS FOR PROFITABLE TRADE IN STOCKS
- FREQUENTLY ASKED QUESTIONS (FAQ)
A stock market is a place where different buyers and sellers meet and trade and engage in trading of stocks. This market does not have any physical existence.
All this trading takes place online. Earlier all the shares bought had a physical existence. The issuing of Share certificates involved 2 of the director’s signature along with the signature of company secretary and common seal of the company (if req.). The settlement cycle of each market transaction takes T+2 days( 1 transaction day + 2 days extra) to settle due to dematerialization.
Dematerialization means to convert physical shares into electronic form. This makes it easy to alter the information and transfer the share from the name of one person to another easily.
BASICS TO KNOW BEFORE TRADING IN THE STOCK MARKET →
- It is highly risky to trade stocks and share market.
- You should have all the information related to technical as well as financial analysis of the company wherein you are a shareholder.
- One should always buy or sell shares with your own intelligence.
- You must avoid taking tips from the one who himself has never practiced the trade in the stocks.
- One should be patient if you have invested or performed trade in the stocks.
- You should avoid aggressive buying and selling of shares.
- The lack of adequate knowledge of buying and selling of shares is gambling.
- You should only invest the money which is in surplus and you can afford to lose it.
- You should put stop loss and target to your transactions for safety.
- It is mandatory to open a DEMAT a/c before trading.
- The person dealing in shares need to link DEMAT a/c with savings a/c.
- Any person wishing to do the same can do it with a broker or any bank.
- You can have more than 1 stockbroker, this broker is also called a depository participant.
- It is important to convert physical shares into the dematerialized format as soon as possible.
- Avoid trade-in the stocks of small companies, there is a huge chance that these companies might fail and your money may get dissolved.
- You can even take money on leverage from banks or brokers and you can trade in the stock market.
- Make transactions thoughtfully as brokers and bankers or whosoever helps you to trade in stocks charge brokerage charge at each transaction.
HOW TO TRADE IN STOCKS?
1) OPEN ACCOUNT WITH REGISTERED BROKER
If you wish to buy or sell any security you need to visit a registered broker and open your account with him. For getting registration with a broker you need to fill a broker-client agreement and a client registration form before placing an order with him.
There is a list of other following items of submission with the broker →
- PAN number ( this is mandatory)
- Date of birth and address
- Educational qualification and occupation.
- Residential status (Indian / NRI)
- Bank account details.
- Depository account details.
- registration with any other broker.
- Client code number in the client registration form.
After these formalities, the broker finally opens a trading account in the name of the investor.
2) OPENING DEMAT A/C FOR TRADING IN STOCKS
The investor then opens a ‘beneficial owner account’ (BO) or DEMAT a/c with the stockbroker for holding and transferring securities in the Demat form, along with this you need to have a savings account intact for cashless transactions in securities.
Now you can place orders with the stockbroker to buy and sell shares. you need to give clear information about how many stocks and at what price do you need to buy stocks. Later the broker executes your deal and issues you a transaction slip.
4) MATCHING ORDER
The broker now goes online and tries to match your requirement and checks the best price available.
5) ISSUANCE OF TRADE CONFIRMATION SLIP
The event of buying and selling shares at the mentioned price leads to the transmission of information to the brokers terminal, which causes electronic execution of the order. The broker can now issue your trade confirmation slip.
6) ISSUANCE OF CONTRACT NOTE
There is issuing of contract note by the broker after the execution of order.
Following details are available on this contract note →
- No of shares bought or sold
- Time of deal.
- Brokerage charges.
This document is an important document as it has legal importance and it can help to settle disputes/claims between the investor and broker.
There is an assignment of unique order code number with every transaction by the stock exchange and this is print of this unique code number on every contract note.
7) PAY-IN DAY
In case if you have to sell you should deliver the shares sold (if in physical form) or pay cash for the shares bought. This should be done as soon as a contract note is received or a day prior to the day when the broker has to make the payment or delivery of shares to the exchange. This day is called PAY-IN DAY.
8) TRANSACTION CYCLE
Cash is paid or shares are delivered on the pay-in day, which is before the T+2 day as the deal has to be completely settled on the T+2 days.
9) PAY-OUT DAY
On the T+2 day, the stock exchange will deliver the share or make payment to the other broker.this day is called PAY-OUT DAY. now the broker has to make the payment to you within 2 hrs of the pay-out day since the broker has received the payment from the stock exchange.
10) DELIVERY OF STOCKS
The broker can make the delivery of shares in Demat form directly to the investor’s Demat a/c. But for this, the investor has to share the details of his beneficiary account or Demat a/c with the depository participant or stockbroker and allow him to buy shares in his account.
TIPS FOR PROFITABLE TRADE IN STOCKS
- It is always recommended to do a thorough investigation of the companies whose stocks one wants to buy or sell.
- One should keep an eye on the day-to-day policy of the government and its impact on the profitability of the business houses.
- It is advised to read books related to investing.
- You should try to deal with the blue-chip stocks only as they fall and recover faster when the trend goes bullish.
- One is advised to use stop-loss whenever buying any securities.
- You should buy stocks of the companies whose dividend yield is high or those companies which have bonus paying history.
- It is always better to buy stocks of zero debt companies.
- Stocks with good order books and high future prospects should also be considered.
- Always try to invest in different sectors as it is always advised to put your eggs in different baskets.
- You should never invest blindfolded on the tips of broker houses or agents.
- Study successful investor’s case studies.
- Analyze the last 20 years bull or bear runs in the market.
- Play virtual stock market simulator games.
- If you are a new investor do not deal in futures and options and try to avoid leverage.
- Do not invest in all your savings in one go.
- Negotiate with your broker on the brokerage charges.
ALSO READ MY BLOG – 30 BASIC STOCK MARKET TERMS YOU NEED TO KNOW
Trading in share market is not difficult,but if accompanied with correct guidance.
In this blog i have shares some basics for trading in share market and many tips and tricks for profitable trading.
Some of the most important tips and tricks are as follows-
1> Patience is the most important as aggressive buying and selling can lead to huge losses.
2> Always invest the money which is left ideal with you as there is always a chance to lose all the money if not invested in correct stocks.
3> Take the help of a broker at the time of investment.
The complete process of trading in share market is also shared here
ALSO READ – BEST FUNDAMENTAL ANALYSIS
FREQUENTLY ASKED QUESTIONS (FAQ)
As an action, trading or to trade is the buying and selling of stocks. A trade is the result of a single action to buy or sell. If an investor makes a trade, he has purchased or sold.
Today, the easiest option is to buy stocks online through an online stockbroker. Opening an online brokerage account is as easy as setting up a bank account: You complete an account application, provide proof of identification and choose how you want to fund the account.
Yes, you can become rich by stock trading. But, you must have something different than 95% people who loose money in trading. Yes, it is possible to get rich by doing day trading but you have to be very disciplined and need to get rid of that greed that says “let’s wait for one more point”.
“The stock market is nothing more than gambling.” Unlike gambling, the house is on the investor’s side. For example, when a stock price rises, both company executives holding shares and the individual investors win. Gambling operates differently.
Paul Tudor Jones