October 20, 2017

Beginner’s guide to stock markets

Stock Market: A stock market is a physical or electronic space where buyers and sellers of ownership in corporation can exchange their shares with each other.
Investing is much more than a numbers game, but you can’t get very far from numbers if want to understand what’s going on in the market. When you buy a share of stock, you are taking a share of ownership in a company. Collectively, the company is owned by all the shareholders, and each share represents a claim on assets and earnings. The most common ways to divide the market are by company size (measured by market capitalization), sector and types of growth patterns. Investors may talk about large-cap vs. small-cap stocks, energy vs. technology stocks, or growth vs. value stocks, for example. Over the short term, the behavior of the market is based on enthusiasm, fear, rumors and news. Over the long term, though, it is mainly company earnings that determine whether a stock’s price will go up, down or sideways. Since 1926, the average large stock has returned more than 10 percent a year — well ahead of inflation, and the return of bonds, real estate and other savings vehicles. As a result, stocks are the best way to save money for long-term goals like retirement. As a general rule, it’s best to hold stocks from several different industries. That way, if one area of the economy goes into the dumps, you have something to fall back on.
Getting Started in Stock Market Trading. Things you should know
It is very interesting to invest in shares, though most of the people would like to start with small money.
First of all, you need to know a little bit in detail about the stock market, then about the shares and the mode of their trading. What are the risks involved and how to be smart in dealing with shares?

  • Stock Market – It is the place where the shares of listed companies are bought and sold. In India, you have BSE and NSE as two big stock exchanges.
  • Shares are bought and sold by you and me only through approved brokers.
  • First you need to open an account with particular brokers both Demat and Trading Account.
  • Go to the respective bank and open a Savings account with certain amount of deposit.
  • A Demat account is nothing, but the account where the shares bought by you will be kept separately.
  • Only you could operate that account online, through Internet.
  • You could open the online facility offered by any brokers and buy shares you wish and decide the quantity and the price.
  • You online order for purchase would be carried out by the Brokerage company. They charge broker commission, much less compared to private brokers.
  • It is very important for you to have enough balance to your credit in your savings account.
  • As and when you buy on line, your Demat account will be credited with those shares. The money for the purchase will be automatically deducted from your account by the bank.
  • You also have to keep looking for opportunities to sell the shares that you have already bought and kept in your Demat account.
  • For buying and selling, it is necessary to familiarize which shares to be bought at what prices and sell them at what price.
  • As and when you decide to sell (depending on the price quoted in the market) you could sell them through online trading system.
  • The moment you sell your Demat account will be debited with the number of shares sold by you.
  • Your account will be credited with the amount for which you have sold.

  • Depending on the amount of profit earned, tax will also be deducted by the bank (TDS). The bank will give you a TDS certificate by the year end, i.e., March 31, of that year which you could attach with the return to justify the tax payment.
  • When the shares could be bought or sold?
    Always sell the shares when the price is up and buy when the price is down. Every body had to adapt to this formula.
  • What profit should it give you?
    You buy a share for a particular price. Take the amount as investment. Any bank will lend you at ten per cent interest. It will give you 24 per cent return if the share price rises in such a way. Do not wait for the market to crash and start searching for buyers for the price you quote.

After selling, never look back and repent for what profit you have earned, had you delayed the sale. Be happy that it did not happen otherwise. This is the best way, to sell.

 

  • If you want to buy, look for 52 week low, look for the peer companies, their price and compare it with the company you want to buy.

Look for the prospectus, future plans and the profit the company ought to make in the next year. Take the perception or a change and buy.

  • You cannot take profit in the buys. Losses do occur as long as you are at decent surplus for which you have no reason to be unhappy.

It is imperative for the investors to follow the Dos and Don’ts in general while dealing in the stock market. As there are attendant risks associated with it.
Given below are the Dos and Don’ts in general for investors who are dealing in Stock markets.

Dos

  1. Always deal with the market intermediaries registered with SEBI / Exchanges.
  2. Give clear and unambiguous instructions to your broker / agent / depository participant.
  3. Always insist on contract notes from your Broker. In case of doubt of the transactions, verify the genuineness of the same on the Exchange website.
  4. Always settle the dues through the normal banking channels with the market intermediaries.
  5. Before placing an order with the market intermediaries please check about the credentials of the companies, its management, its fundamentals and recent announcements made by them and various other disclosures made under various Regulations. The sources of information are the websites of Exchanges and companies, databases of data vendor, business magazines etc.
  6. Adopt trading / investment strategies commensurate with your Risk bearing capacity as all investments carry risk, the degree of which varies according to the investment strategy adopted.
  7. Please carry out due-diligence before registering as client with any Intermediary. Further, the investors are requested to carefully read and understand the contents stated in the Risk Disclosure Document, which forms part of investor registration requirement for dealing through brokers in Stock Market.
  8. Be cautious about stocks, which show a sudden spurt in price or trading activity, especially low price stocks.
  9. Please be informed that there are no guaranteed returns on investment in stock markets.

Don’ts

  1. Don’t deal with unregistered brokers / sub-brokers, intermediaries.
  2. Don’t deal based on rumours.
  3. Don’t fall prey to promises of guaranteed returns.
  4. Don’t get misled by companies showing approvals / registrations from Government agencies as the approvals could be for certain
  5. other purposes and not for the securities you are buying.
  6. Don’t leave the custody of your Demat Transaction slip book in the hands of any Intermediary.
  7. Don’t get carried away with onslaught of advertisements about the financial performance of Companies in print and electronic media.
  8. Don’t blindly follow media reports on corporate developments, as they could be misleading
  9. Don’t blindly imitate investment decisions of others who may have profited from their investment decisions.

About The Author

Related posts