Equity markets give retail investors the option to invest in financial instruments, with the goal of either making a profit through day trading or appreciating their wealth through long-term investing. Knowing how to invest in the equities market requires skill sets relating to business fundamentals, intricacies of the market, and various aspects of trading such as techniques and strategies.
This article summarises the important features of the stock market and suggests pragmatic initiatives that will enable novices to appreciate and commence their journeys in the financial markets without fear or confusion.
With stocks, you buy ownership from a company. By purchasing stock, even a single share, you become a shareholder and can expect to benefit from the company's profits through its capital appreciation, dividends and other loyalty rewards that the shareholders receive. Stocks vary by type, categorised based on criteria such as,
Companies are categorised based on their market caps, such as
1) Large-cap (top 100 companies)
2) mid-cap (top 101 – 250 companies)
3) small-cap. (companies from the top 251 and upon)
Once you purchase shares (even one share), you become a shareholder of the company. You will be eligible for corporate actions and will have voting rights depending on the shares you hold.
The most common types of shares are
1) Common shares (has voting rights)
2) ESOP (employee stock option preference)
3) Preferred shares (have no voting rights)
The companies which are fundamentally strong, by having good performance over the past years, are called fundamentally strong stocks. These stocks are well known as highly stable stocks capable of generating consistent returns over time.
Example: Stocks in Nifty50 and Sensex (Zomato, Trent) are considered fundamentally strong because they have outperformed in their previous financial years.
Stocks with a high daily trading volume are called high-volatility stocks. Their price fluctuations during trading hours are highly volatile, which provides high liquidity to investors and traders in the market.
Stocks with a high dividend yield are called high-dividend stocks. A high dividend yield percentage indicates that a stock pays a dividend compared to its CMP.
The terms "stock market" and "share market" are often used interchangeably, but there’s a subtle difference. A share market refers specifically to trading shares, while a stock market encompasses a broader range of financial instruments, including bonds, mutual funds, derivatives and other tradable financial instruments.
Both are platforms having an exchange where buyers and sellers exchange ownership stakes in companies.
Funds are raised by selling existing or new shares by a company to the public, private investors, and venture capitalists through a stock exchange like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). This process usually starts with Initial Public Offerings (IPO) directed to the primary market.
As investors buy these shares, companies grow which increases the value of shares resulting in capital gains. In addition to this, some companies pay dividends which are the profits given out to shareholders.
The shares are later exchanged in the secondary market where investors exchange shares with each other through brokers without any relevance of the issuing company.
Stock prices are determined by the supply and demand for them due to various factors like economic reports, productivity of the company, current market situation, mood of the traders. The stock market had an average annual return of approximately 10% in the past, showing that it can be used for wealth creation.
For capital funding, these firms appeal to the general public stock companies where you and I purchase their shares while investors get a claim to part of the wealth of the firm and share dividends which enables gaining wealth through the capital market.
In many instances, businesses incur and pay debts with a capital supplied below the required figures. While the earnings obtained from selling goods or services may suffice for some, many will require additional assistance to cover working capital requirements or to facilitate growth.
Trading stocks can be exciting and lucrative, but success requires preparation, knowledge, and discipline. Here’s a beginner-friendly roadmap to get started.
Before taking any trade decision, determine your trading approach based on your personality, risk tolerance, time commitment, and goals such as,
To trade, you’ll need a Demat account to hold securities electronically and a brokerage account to execute trades. The process is simple:
Select a brokerage with tools suited to your needs
When you think you are ready for trade ab understanding all above discussed risk factors, execute trades via your brokerage like,
Understand Stock Quotes:
Set Stop-Losses:
Start Small:
Seek Advice:
The economy of India and the BSE and NSE exchanges have great scope for wealth getting. No matter intraday trading or investment over a number of years, success depends on the knowledge of the stocks, their markets and their terms and a disciplined follow-up process.
Risk management, choosing the right style, opening the accounts, research and trade execution. Without a doubt, you can achieve financial success with the right balance of thorough preparation and a long-term perspective on the up and down turn of the financial markets.
Related Articles:
1. How Does the Stock Market Work in India?
2. Stock Market Trading - Types of Trading and Its History
3. Stock Market Analysis : Meaning, Importance and more
4. Share Market Timings: Opening & Closing Time in India