Stock Trading For Beginners India– Easier Than You Think

You might be surprised with the heading of this post as nearly everyone has the opposite view. Let me show you how ??

Can You imagine a Person Operating a Patient after a five day crash course? … Can you imagine a Person building the Power Plant on the basis of watching some You Tube Videos ? …And constructing it successfully.

Can you thought about a Person driving a Car after a quick lesson from his friend ?

Ok…let me use more simpler examples… Can you think of yourself making a Circular Roti after a 1 hour lecture from your mother or your wife ? or can you even think of any profession or work which do not require proper learning and its practice.

All of the above examples clearly convey my Point that Stock Trading is as easy as any other Profession. But you need to have a proper learning Methodology.

In this article, I am exploring basics of Stock Market and will take you with me to a Journey towards becoming a SUCCESSFUL STOCK TRADER.

Stock Trading for Beginners: What is difference in Stock Market and Share Market

When the buyers and sellers come together at a single place it is known as the stock market. These two terms are interchangeably used.

Stock Trading for Beginners : What is Stock Exchange

The shares of the different companies are listed on two primary stock exchanges of the country: National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).

All the depository participants are registered with NSDL and CDSL.

Stock Trading for Beginners: Types of Trading in Indian Share Markets

Intraday trading and delivery trading are the two major types in India. Intraday trading is a single day trading. A Trader has to square off all the positions before the market closes. Any buy or sell transaction happen in a single day.

Delivery trading refers to trading which extends beyond one day. You can buy stocks and retain them for more than a day. Transactions occur on next day. The brokerage in the case of delivery trading is very high.

Stock Trading for Beginners: Difference between Primary Markets and Secondary Markets

There are two kinds of markets i.e. Primary markets and Secondary markets and  Let us now understand the difference between the two types.

When a company decides to list itself on the stock exchange, it comes out with an Initial Public Offer (IPO). When a trader or investor applies for shares in an IPO, such market is termed as the primary market.

On the other hand, when the traders and investors are able to purchase and sell the shares of a company after they are listed on the exchange, it is called secondary market.

 Stock Trading for Beginners: What is Trading and Investment?

When shares are purchased and sold in short span of time, it is known as trading. On the other hand, investment means purchasing the shares and holding them for long-term i.e. more than 12 months. The traders sell the shares as soon as he makes profits while the investor waits for the long term gains.

her stock market basic that every beginner should know is when the shares price starts to rise and fall. To put it another way, there is always a reason for rise and fall in the stock price. Therefore, the investors must have some basic knowledge of stock price movement.

Stock Trading for Beginners: How Shares Price rise or Fall?

Like any other items, Stock Price changes due to change in Demand and Supply.

The share price rises when there is high demand to buy the stock as more and more people think that Share price is going to rise and they continue buying at all available Prices.

The share price declines when there is high supply of the stock i.e. as more and more people think that Share price is going to fall and they continue to sell at all available reduced Prices.

The Bombay Stock Exchange (BSE) & National Stock Exchange (NSE)

The BSE has been in existence since 1875. The NSE, on the other hand, was founded in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism, trading hours, and settlement process.

As of February 2020, the BSE had 5,518 listed firms, whereas the NSE had about 1,799 as of Dec. 31, 2019.

Almost all the significant firms of India are listed on both the exchanges. The BSE is the older stock market but the NSE is the largest stock market, in terms of volume. As such, the NSE is a more liquid market. In terms of market cap, they’re both comparable at about $2.3 trillion.

Stock Trading for Beginners: What is Market Indexes

NSE index comprises of 50 stocks called NIFTY and BSE index comprises of 30 stocks is commonly called Sensex.

Stock Trading for Beginners: Trading Mechanism

Trading at both the exchanges takes place through an open electronic  Limit Order book in which order matching is done by the trading computer.³ There are no Market Makers and the entire process is order-driven, which means that market orders placed by investors are automatically matched with the best Limit Orders. As a result, buyers and sellers remain anonymous.

Order Driven Market brings more Transparency by displaying all buy and sell orders in the trading system. However there is no guarantee that all orders will be executed as there are no  market makers,

Stock Trading for Beginners: How to Buy and Sell Shares?

First Step:

You need to open a Demat Account with a stock broker. This account can be opened Online

Document required : PAN Card, Adhar Card.

Second Step:

You need to link your Bank Account with your Demat Account.

Third Step :

Start Trading; The brokers will take the order and act accordingly. In return, the investor or trader has to pay brokerage.

Stock Trading for Beginners: Who Regulates Stock Market?

Securities and Exchange Board of India (SEBI) regulates the Indian stock market. They have the power and responsibility to look after the interest of the investors. They aim to develop the share market and its working.

Stock Trading for Beginners: Basic Terminologies Of Stock Market

Following is list of common terminology which is used by Stock Traders and Beginners must know each of it.

Ask/Offer:

The lowest price an owner is willing to sell the stocks.

Averaging Down/Averaging Up

When an investor buys more of a stock as the price goes down. Due to it, the Average cost of Stock decreases.

In the same way, When an investor sells more of a stock as the price goes up. Due to it, the Average cost of Stock increases.

Bear Market:

A market in which stock prices are falling consistently.

Beta: 

It is a measurement of the relationship between the stock price of any particular stock and the movement of the Index.

Bid: 

It is the highest price a buyer is willing to pay for a stock. It is the opposite of ask/offer.

Blue Chip Stock:

Stocks of large, well-established and financially-sound companies which hold a record of consistently increasing rate of paying the dividends over decades to its stockholders. Blue chip stocks typically have a market capitalization in thousands of crores.

Bonds: 

It is a promissory note issued by companies or government to its buyers. It speaks about the specified amount held for a specified time period by the buyer.

Broker/Brokerage Firm:

A registered securities firm are called broker/brokerage firm. Broker’s acts as an advisor for purchase and sale of listed stocks, they do not own the securities at any point of the time. But they charge a commission for their service.

Bull Market: 

A market in which the stock price is increasing consistently.

Business Day: 

Monday to Friday, excluding public holidays.

Close Price:

The final price at which the stock is traded on a given particular trading day.

Commodities:

Product used for commerce that is traded on a separate, authorized commodities platform. Commodities include agricultural products and natural resources.

Debentures: 

A type of debt instrument that is not secured by physical assets or collateral. Debentures are backed only by the general creditworthiness and reputation of the issuer. A debenture is an unsecured form of investment.

Derivatives: 

A security whose price is derived from one or more underlying assets. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates, and market indexes.

Diversification: 

Reducing the investment risk by purchasing shares of different companies operating in different sectors.

Dividend:

A portion of the company’s earnings decided to pay to its shareholders in return to their investments. It is usually declared as a percentage of current share price or some specified INR value, usually decided by the board of directors of the company.

Day Trading

The practice of buying and selling within the same trading day, before the close of the markets on that day, is called day trading. Traders who participate in day trading are often called “active traders” or “day traders.”

Equity:

Common and preferred stocks, which represents shares in the ownership of a company.

Hedge:

A strategy or an attempt in reducing the risk of adverse price movements of assets.

Income Stock:

A security which has a solid record of dividend payments and offers the dividend higher than the common stocks.

Index: 

A statistical measurement of change in the economy or security market. Indices have their own calculation methodology and are usually measured as a percentage change in the base value over time.

Initial Public Offering (IPO): 

A company’s first issue of shares to the general public. IPOs are issued by smaller, younger companies seeking funds for expansion and growth, but large companies also practice this to become publicly traded companies.

Internet Trading: 

Internet Trading is a platform with the Internet as a medium. Internet trading execution takes place through order routing system, which will rout traders order to exchange trading system. Thus traders sitting in any part of the world can be able to trade using their broker’s Internet Trading System. The Securities and Exchange Board of India (SEBI) approved Internet Trading in January 2000.

Limit Order:

An order to buy or sell a share at a specified price. The order will be executed only at the specified limit price or even better. A limit order sets a minimum price the seller is willing to accept and maximum price the buyer is willing to pay for it.

Listed Stocks: 

The shares of an issuer that are traded on the stock exchange. The issuer has to pay fees to be listed in the stock exchange and abide by the regulations of the stock exchange to maintain listing privilege.

Market Capitalization:

The total value in INR of all of a company’s outstanding shares. It is calculated by multiplying all the outstanding shares with the current market price of one share. It determines the company’s size in terms of its wealth.

Mutual Fund: 

A pool of money managed by experts by investing in stocks, bonds and other securities with the objective of improving their savings. These experts will create a diversified portfolio from these funds.

One-sided Market: 

A market that has only potential sellers or only potential buyers but not both.

Portfolio: 

Holding of any individual or institution. A portfolio may include various type of securities of different companies operating in different sectors.

Pre-opening Session: 

The pre-open session is for a duration of 15 minutes i.e. from 9:00 AM to 9:15 AM. In pre-open session order entry, modification and cancellation take place.

Price Earnings (P/E) Ratio:

A valuation of companies last traded share price to its latest reported 12 months earnings per share. For example, if the last traded share price of any company is INR 40 and earnings over a last 12 months per share is INR 2, then the P/E ratio of that company is INR 20 (=40/2)

Rally

A rapid increase in the general price level of the market or of the price of a stock is known as a rally. Depending on the overall environment, it might be called a bull rally or a bear rally. In a bear market, upward trends of as little as 10 percent can qualify as a rally.

Securities:

A transferable certificate of ownership of investment in products such as stocks, bonds, future contracts and options which an individual holds.

Sector

A group of stocks that are in the same industry belongs to the same sector. An example would be the technology sector, which includes companies like HCL and Infosys. Some traders prefer to trade in a specific sector, such as energy, because they know the industry well and can better predict stock price fluctuations.

Stock Split: 

An attempt to increase the number of outstanding shares of a company by splitting the existing shares. It is usually done to increase the availability of shares in the market. The usual split ratio is 2:1 or 3:1, i.e. one share is split into two or three.

Short Selling

It’s a way to take advantage of a stock that you believe will decrease in price. After you sell short, you can buy back the shares at a lower price point and take the difference in price as your profit.

 Stock Symbol

A stock symbol is a one- to four-character alphabetic root symbol that represents a publicly traded company on a stock exchange. Rural Electrification stock symbol is REC. while Infosys is INFY.

Trading session:

The period of time from 9:15 AM to 3:30 PM is open for trading for both sellers and buyers, within this time frame all the orders of the day must be placed. Here all the orders placed in pre-opening sessions are matched and executed.

Volume

The number of shares of the stock traded during a particular time period, normally measured in average daily trading volume. Volume can also mean the number of shares you purchase of a given stock. For instance, buying 2,000 shares of a company is a higher-volume purchase than buying 20 shares.

Volatility

The price movements of a stock or the stock market as a whole. Highly volatile stocks are those with extreme daily up and down movements and wide intraday trading ranges. This is often common with stocks that are thinly traded or have low trading volumes.

Yield:

It is the measure of return on investments in terms of percentage. Stock yield is calculated by dividing the current price of the share by the annual dividend paid by the company for that share. For example, if the current price of the share is INR 100 and the dividend paid is INR 5 per share annually, then the stock yield is 5%.