The stock market is considered to be the most profitable investment option for both seasoned investors and beginners. While the internet is filled with information on trading, beginners often have trouble understanding just how to trade in the stock markets.
Today, we will provide step-by-step guidance on how to trade in the stock markets, and also share important stock market basics.
In this article:
- Stock market trading basics
- How to trade in the stock markets for beginners
Let’s start with the stock market trading basics.
What is the stock market?
A stock market is a place where investors can buy and sell shares to make profits. Shares or stocks represent ownership in a company. When a company goes public, it issues shares. The investors who buy these shares are known as shareholders of the company.
How does trading in the stock market work?
In trading, two parties are involved. The buyer, having a positive view on the stock and the seller, carrying a negative view on the stock.
Both buyers and sellers input their buy and sell orders. These orders are then matched on the stock exchange. Post order matching, the clearing houses settle the trade. The buyer gets shares in his Demat account and the seller gets the money. This is how trading works in the stock market.
Why do share prices fluctuate?
Share prices fluctuate due to demand & supply factors. In the share market, there are individuals with two different mindsets, causing price fluctuation.
Bull Traders: When individuals expect share prices to go up, they are known to be bullish on shares.
Bear Traders: When individuals expect share prices to go down, they are known to be bearish on shares.
The fight between bulls and bears causes fluctuations in the share prices.
[Suggested reading: Are you a Stock Market Bull or Bear?]
How to trade in the stock markets – Step-by-step guide for Beginners
1. Open a Demat account
To trade in the stock market, you need to open a Demat and trading account with a broker. A Demat account is similar to a bank account. A Demat account stores your shares electronically. A trading account is used to place buy and sell orders.
In India, you cannot trade in the stock markets without a Demat & trading account.
2. Understand the stock
If you are an intraday trader, then it is important for you to understand the technical aspects of the stock. It’s daily movement, open, close, highs, lows, volume etc.
If you are a long term investor, then you need to select fundamentally strong long term stocks. You need to consider fundamental factors such as P/E ratio, EPS, market capitalisation, debt to equity ratio etc.
3. Bids and asks
- The bid price is your purchase price.
- The ask price is your sale price.
To ensure a profitable trade, it is important to decide on the correct buying and selling price. You can use technical analysis to decide on profitable buying and selling prices.
4. Learn to use stop loss
Stock prices are highly volatile. As a beginner, you need to deploy strict stop-loss while investing in the stock market. A stop-loss protects your capital by automatically squaring-off your position at a particular price point.
5. Start trading in ‘safe’ shares
While nothing is ‘safe’ in the stock market, as a beginner, you should start trading with blue-chip stocks which are less volatile. These stocks are more likely to provide stable returns even in adverse conditions.
[Recommended reading: Best stocks for intraday trading in India]
For beginners, learning how to trade in the stock market can be time consuming. But once you understand the fundamental and technical aspects of a stock, you will be able to become a successful trader or investor.
Becoming a trader or investor is not a one-day job. It takes considerable time and effort. You need to constantly polish your trading skills.
The bottom line is – You don’t need to be a great trader to get started, but you need to start to become a great trader!
The best way to trade in the stock market is by opening a Demat account with Samco. With a Samco Demat account, you can get unique benefits like “Buy Today Pay in Two Days”, Stock Plus, Option Plus, etc. with lowest brokerage!
[Recommended reading: What is Intraday Trading? – Benefits and Tips for Intraday Trading]