And here comes the Sunday,Ajay mesmerizing after a busy week at the office.He makes coffee for himself and start reading the headline of The Economic Times-“Man made millions while trading in stock market”.
Suddenly his attention goes to this eye catchy headline and decided that he also want to invest in the share market.Now a days these headlines are often comes and inspire many of us to invest.
There are many people who made in the wealthiest list and there are many who just wash off. False promises and highly public stories of investors striking it rich or losing everything skew perceptions of the reality of the average investor.
By understanding a little more about the stock market – and how the stock market works – you’ll likely find it isn’t as scary as you may think and that it’s a viable investment.
How Stock Market Works-
A stock market is the platform where financial instruments like stocks and derivatives are traded.
When you buy a stock you’re buying a piece of the company. When a company needs to raise money, it issues shares. This is done through an Initial Public Offer(IPO), in which the price of shares is set based how much the company is estimated to be worth, and how many shares are being issued. The company gets to keep the money raised to grow its business, while the shares (also called stocks) continue to trade on an exchange, such as the National Stock Exchange(NSE).
What is a share?
An equity share is like a piece of paper that represents that you own a specific percentage of company. For eg:- If there’s a company which consists of 100 shares and I own 10 shares of that company then I own 10% of that company and by 10% I mean Total 10% of that company.
People buy shares because they expect to profit when the company profits or expects the increase in price of share and sell at a higher rate than they bought. It’s kind of like Retailers they buy some goods at a low price and sell in market at high price, here the difference is selling of that good at a higher price is more predictable than stock market.
Choosing the right BROKER
One of the most important investment decisions you’ll make has nothing to do with stocks, bonds or mutual funds. This crucial decision is picking a broker.
There are dozens of companies offering brokerage services on the internet, and many of them are just as good or better than traditional.
Three factors to consider are: Does the broker offer the services you want? Are the trading costs relatively low for those services? Does the broker offer better value than others do?
I now only use and recommend zerodha
Trading in the stock markets is not possible without appropriate Demat account and Trading account, they are electronic or digital forms of your stock market securities, all the shares/securities you have brought or sold is done only with your Demat account or trading account.
The first step to open a demat account is, along with the appropriate bank account, cheques, address proof.
While applying for a demat account you should be very careful about signatures.All signatures on your pan card, application, bank cheque address proofs should match.
Within one day of opening of demat account you will got trading account if applied.The trading account acts much like your original demat account, it is just a easy user friendly facility created by the stock brokerages. Opening a trading is no risk but also faster all the work is done by your stock broker, generally it is opened free of cost, but Stock Exchanges or SEBI does not promise any security to your money in trading account as it is completely related your stock brokerage. Almost all trading is preferable through the trading account (expect long-term investment where demat account offers good security) the trading account offers
- Easy trading without any relation to your demat account.
- Displays your account details instantaneously.
- Displays any messages you are getting from your brokerage (E.g.: stock tips).
- Facilitates the online transfer and online trading in the stock markets.
How to Identify good stocks:
- Prospectus of top performing mutual funds: See the top performing mutual fund prospectus, the stock held by them, their yearly returns and performance , this could give you the idea where you should invest your money. Old funds are better as they have a more historical data
- Promoters Holding and Honesty: Good Companies will also be majorly owned by their promoters (as owner why will some one sell his company to outsiders if its making good profit and has enough potential?) Good companies share profits with their share holders in the form of Dividends and Bonus.
- Check the historical charts: check the historical charts of the stocks. In case you are from India then look and HDFC Bank, Kotak Mahindra Bank, Ajanta Pharma, Eicher Motars, Maruti, Bajaj Auto, M&M. All these stocks go up in 45 degree angle and even in case of any corrections fall less than the market
- Look for consistent companies: Don’t invest in companies which report losses or their profit falls dramatically, instead look for companies posting profits on a consistent basis. the Stock price of such companies also become less volatile.
- Keep away from Debt Companies: Keep away from the companies that have heavy debt or expensive debt (debt taken at higher rate of interest) in their balance sheet. These companies will be paying most of their profits to debtors and then what ever will be left after will be shared with share holders. Many a times nothing is left and shareholders receive their part of losses and hence stock price declines further.