The stock market presents an excellent opportunity for everyone. This is evidenced by many who have reaped long-term and short-term rewards from investing in stocks. 

Read on to learn how you can get started as we discuss the ins and outs of investing in the stock market.

Understanding Stock Market Basics 

Stocks, What Are They?

A single stock is a small part of a company that can be bought and sold on the stock market. A stock’s price can go up or down depending on how well the company is doing. For exmaple, if a company has 100 stocks and you buy 1 stock. You now own 1/100 of that company. 

What is the Stock Market?

The stock market is a venue where you can buy and sell company stocks. India has two main stock markets where its trading takes place: The National Stock Exchange (NSE) and The Bombay Stock Exchange (BSE).

Benefits of Stock Market Investing

Stock Prices Increase Over Time. Meaning that when you initially buy a stock, you can sell it at a later date for a higher price/profit. Investing in India’s top 50 companies (Nitfy50) will get you an average return rate of 17%. Stock prices go up when the company does well.

Stocks Pay Dividends. Dividends are quarterly (every three months) payouts investors get for investing in a company’s stock. Most blue-chip/large-cap companies offer their investors dividends. 

How to Buy Stocks?

You can not directly call up the stock exchange and ask to buy stocks. You need a Stockbroker. 

They act as intermediaries between you and the stock market, allowing you to choose how you want your buy/sell order handled. A stockbroker can be a person or an online platform.

Most people today prefer to use trading platforms. The stock-buying process goes: Checking a stock’s price, placing an order on your trading platform and waiting for it to go through. All this happens in real-time within seconds.

Building a Diversified Portfolio

Diversifying your portfolio helps cushion you against major losses during drastic price drops.

We recommend investing in different assets rather than investing all your money in one stock. These can be mutual funds, stocks, bonds, or stocks from different companies. 

This way, you won’t lose all your money if one company becomes unprofitable since you will still have other investments to draw money from.

Risk Management

• Generally, a stock is worth buying if the company offering it has a good market position and has had good growth over the last few quarters. 
• Each type of stock has a different risk level. Large-cap/Blue-chip stocks are considered low-risk, low interest, while small-cap/growth stocks are high-risk, high-return.
• Many traders use the 1% rule – Do not invest more than 1% of your money or trading account into a single trade. For example, in a ₹20,000 account, you shouldn’t lose more than ₹200 on a single trade.

Common Mistakes to Avoid 

• Don’t invest more money than you can afford to lose. The stock market is pretty volatile and investing in stocks without researching the company can be detrimental. 
• Sell stocks/Take profit when it makes sense. It can be tempting to keep your money in the market, but that is never a good idea. You may never know when a sudden downturn can happen.

Wrapping Up

Today, you can easily find some of the best investment platform online to begin investing in the stock market. Remember to follow the recommendations stated in our blog, as they will help you get started and build an effective trading strategy.