While numerous individuals are rushing into the stock market, they need to understand stocks come with a higher share of risk. If rewards are higher in the stock market, then risks also come in the same proportion as the stock market movement is uncertain. Where many investors minimize the risk with long-term investments in quality stocks, some investors want to try their hands at short-term trading.
Stock investing and trading requires a proper approach to the market. Beginners may try to put their thoughts into action and dive into the stock market. If you are just entering the stock world, here are the helpful tips that could benefit you. Before that, let us tell you what is demat account and trading account. A demit account is required to hold your investments and a trading account to place trade orders on the stock exchange. Open both accounts with a reliable SEBI-registered stock broker.
Best Tips to Follow by Market Participants in the Indian Stock Market
Understand first: Trader vs Investor
Both investing and trading involve different strategies. An investor looks for long-term market opportunities and stays invested for several months and even years. In contrast, a trader can buy and sell stocks within minutes, hours, or days. Therefore, you need to decide on the foundation of your journey in the stock world that you want to be an investor or trader.
Stock Market Understanding Before Entering the Market
After deciding on the foundation, basic about the stock market should be right. You can start with basic terminologies, accounts required and then strategies for how to invest in the stock market. You should know what stock exchanges, like BSE and NSE, and their indexes, like Sensex and Nifty, are. Understand what stocks are, stockbrokers, stock market timings, what are market moves, profit announcement impacts on the stocks, etc. It is not a quick step that most beginners think of. You may need to spend time understanding the basics. Otherwise, you may have trouble building your trading/investing strategies.
In the stock market, one who understands the proverb that slow and steady wins the race can create significant wealth. The foremost rule that an individual needs to follow is capital protection. If you want to be an investor, you should diversify the investment portfolio instead of putting all the capital in any one move. If you want to be a trader, loss per trade must be pre-decided.
There are two types of stockbrokers – discount brokers and full-time brokers. You can find several stock brokerage firms in India. As a beginner, you can select a discount broker with a focus on the reputation of the broker, a user-friendly trading platform, and affordable pricing. If you are an investor, charges associated with a demat account are of more concern for you, and a trader needs to focus on brokerage. It can be a flat fee on an annual basis or a percentage of the trade transaction. You can consider a discount broker for affordable demat and trading services.
Say No to Margin Trading Facility
Limited capital is one of the most common problems in the stock market. Stockbrokers offer a margin trading facility (MTF) to short-term traders where the broker provides traders with borrowed capital to buy more securities with opportunities than they can afford at any point in time. You should understand that margin facility is beneficial for professional traders. Beginners have to bear huge losses rather than profits in most cases without experience in the market. You can utilize the margin facility after gaining experience in stock trading.
Get a Reality Check
The stock market may be considered a quick money machine by beginners. Also, they can expect unrealistic gains from their investments, at least for the short-term investments.
Thus, set real goals and save on capital protection rather than chasing profits to stay long in the stock market.
You need to decide where to invest and how much to invest. The trick to invest in the stock market is to opt for a good mix of various asset classes. Once you have decided where to invest, you need to decide how much you can invest. It can be strategized investment amount for each asset class. Focus on specific securities and assign an amount. What you can lose, you should invest it.