Stock Market is a volatile market that involves both high profits and critical loses. This Securities market has two of the most important things that are essential for the investor- these are the Demat Account and the Trading Account.
The main work in stock market trading is to raise fund from the public and trade securities. But, this trading isn’t easy. Thus, before one can start trading, they should be well aware about the concept of stock trading for beginners.
What is Stock Market Trading?
Stocks of the companies that are listed on the leading stock exchanges- Bombay Stock Exchange and National Stock Exchange can be bought and sold by investors which in turn makes them owner of a small part of the company.
A basic difference between trading and investing is that, when trading, one will buy and sell the shares within a shorter time period, whereas while investing, one will hold the shares for a longer time period and sell them when the company is no longer providing expected returns.
What are the types of market?
There are two types of market, namely primary market and secondary market.
- Primary Market- Companies can raise funds for the first time on the primary market. New securities (stocks) are issued by firms and made available to the public on a primary market. Therefore, issuers, purchasers and investment banks, all are involved in the transaction.
An initial public offering, or IPO, is the procedure of issuing shares to the general public for the first time.
- Secondary Market-After the shares are issued in the primary market; they are exchanged, or bought and sold, in the secondary market via a stock exchange.
The transaction occurs between the seller and the buyer. In the secondary market, the stock exchange and broker serves as a middleman.
How to trade stocks?
1. Read relevant and important articles
Reading books that are written for a novice can help new traders learn about investment strategies and other aspects of stock market trading. Developing such a habit will cater to the needs of both beginner and seasoned trader.
Choose a book for a beginner and make sure the language is clear. A beginner can choose the ideal book for fulfilling its own needs by asking peers for book recommendations or by performing a quick online search.
2. Learning the types of Order
An order is a request from an investor to a broker to purchase or sell securities on the investor’s behalf. There are two types of order namely-
- Market Order: An order to purchase or sell a security at the current market price is known as a market order. This kind of order is carried out based on the price that is currently available in the market.
- Limit Order: For Buy Limit orders, the order is only performed at the limit price or a lower price. For Sell Limit orders, the order is only executed at the limit price or a higher price.
3. Choose a set of stocks
A stocks technical analysis can help a trader improve in the field of stock market trading. Further, they have to be very clear about their own theories and assumptions before they start investing. Also, they can go through stock analysis articles for choosing the right stock. While observing a particular stock, traders should have patience and be alert about its price movement.
Note: Be cautious of people who make bold claims about their knowledge regarding the stock market trading but have little to no trading experience.
4. Use Stop-loss order
Traders use stop-loss order is an order to reduce losses and control risk exposure. Via the stop-loss order, the trader introduces an order to exit the trade if the price of the investment reaches to a particular price point that corresponds to a specific amount of loss in the transaction. A trader can limit the risk in a trade if the market goes against it.
5. Monitor the stock market trading
Staying updated about the market at all times should be a new trader’s responsibility. Analyzing historical trends for understanding stock market trading, how it operates and how it is impacted by national, international, and economic factors should also be taken into consideration. Examine the market’s response for each and every event.
Beginners can take any stock, for instance and track the overall performance (5-10 years) and comprehend the causes of both rise and fall of the stock price.
Open a Demat Account and a Trading Account
The best way by which an individual can learn and take part in stock market trading is by taking part in the market. Open a free demat account with SMIFS and start trading in various securities, and eventually develop into a trading specialist.
You can also visit the blog ‘How to open Share market account with SMIFS’ for a detailed understanding of the account opening process.
Q. Are there any disadvantages of online trading?
- Although several companies provide an impressive deal for online trading, there are still many disadvantages of it.
- Clients do not develop a personal relationship with their brokers
- The traders can get addictive to process and undertake short-term investment strategies that can cause significant losses
- Technical errors can often occur while trading through a computer
Q. How to know if my brokerage firm received the order?
There are different factors like high internet traffic, market volume, etc that can affect the transmission of orders. At SMIFS, if a trader places an order for a trade, it shall be notified via a message after the trade is executed. Also, at the end of the day, the trader will also be informed about the transactions that took place throughout the day. All of these information shall be mentioned in the contract notes, that will be sent to the client via e-mail or physical mail, depending upon the account chosen.