Beginners Guide to Stock Market & Its Types Explained | Espresso

Basics of Stock Market Explained for Beginners

The stock markets are the second name for opportunities for investors. Millions of rookies, as well as pro-level investors, invest their money in the Indian stock markets daily to make profits.

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While many of these investors try to make short-term or even intraday profits, others invest in the stock markets to build long-term wealth.

Even though it’s true that stock market investments involve a fair bit of risk, it has been historically proved that long-term investment in the right stocks can provide you with very good returns. And with time, you can also learn how to make use of the market volatility to make quick profits in the equity markets.

But before you embark on your stock investing journey, you must know the basics of the stock market. In this article, we have clubbed the stock market basics for beginners to help you understand the nitty-gritty of this business. Yes, we’ve referred to stock market investing as “business” because several people earn their bread and butter from it.

What is a Stock Market?

Before we delve into the stock trading basics, let’s learn about the stock market first. A stock market or share market is a marketplace where stocks or shares of listed companies are purchased and sold. You can place buy or sell orders for your preferred stocks in a stock market to earn a profit. These markets also allow you to trade in financial instruments such as bonds, derivatives, mutual funds, etc.

Another word that is often used interchangeably with the stock market is “stock exchange”. You can buy or sell stocks only if they are listed on these stock exchanges. There are two premier stock exchanges in India – The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

A Brief History of Stock Markets in India

Earlier, stock market investors in India used to converge around a banyan tree to conduct their trades. As their number increased, they relocated to the Dalal Street of Mumbai in 1854 and formed Asia’s oldest stock exchange – the Bombay Stock Exchange (BSE). It was India’s first stock exchange and has played a prominent role in the Indian stock market ecosystem since its formation.

Then, in 1993, the National Stock Exchange (NSE) was formed. Although the shares initially used to be traded in an open outcry system, it later shifted to an automated trading environment.

Types of Stock Market

There are two types of stock markets – Primary market and Secondary market.

The primary market is the one where a company gets listed to sell its shares to the public for the first time. A company enters the primary market to dilute its equity ownership and raise capital from the investors. This is done through an Initial Public Offering (IPO). The shares are sold at their issue prices in the primary market.

The secondary market is the one where regular trades of shares or stocks take place. For example, after a company has sold all its shares in the primary market, an investor enters the secondary market to sell or buy those shares. In the secondary market, the prices of the shares fluctuate daily, and the investors trade among each other at prevailing market prices.

How to Invest in the Share Market?

The Indian share markets are regulated by the Securities and Exchange Board of India (SEBI). As per the SEBI guidelines, retail investors are not allowed to trade directly in the share markets. Instead, they need to conduct their trades through a stockbroker. To invest in the share market, an investor needs to have a Demat and trading account.

This Demat and trading account helps in the smooth transfer of shares. Investors need to link their Demat and trading account with their savings account to conduct financial transactions.

If you don’t have a Demat account, you can open it online with the help of a stockbroker. You can then log in to the online platform of your stockbroker and invest in the stock markets seamlessly.

Below is the step-by-step guide to investing in the share markets:

  1. Open a Demat and trading account with a stockbroker and link it with your savings bank account
  2. Log in to the online trading platform of your stockbroker
  3. Select the shares you wish to buy or sell
  4. Ensure that you have the requisite amount in your account
  5. Enter the price at which you want to buy or sell shares and then place your order. You can place a market order (to buy or sell at market price) or a limit order (to buy or sell at a specific price)
  6. Wait to find a buyer or seller to complete your trade

Conclusion

Now that you have understood the basics of the stock markets, you can go ahead to start your investing journey. However, remember that stock market investments are always subjected to huge market risks. Hence, you need to be very diligent and smart with your trades.
Also Read: 5 Stock Market Investing Tips

As a beginner, you should only invest in stocks of fundamentally strong companies, and that too for the long term. Once you become acquainted with the stock market ecosystem, you can try your hands at short-term investing and even intra-day trades.

Share Market Knowledge Centre

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Frequently Asked Questions

Yes. As per the SEBI guidelines, you need to have a Demat and trading account if you want to invest in the stock markets. Although you can buy IPO shares even without a Demat account, you will still need a Demat account to hold and sell those shares.

You can open your Demat account online from the convenience of your home or office. You need to select the stockbroker with which you want to open your Demat account, fill up a Demat account opening form, and submit the required KYC details as per the SEBI guidelines. Your Demat account will get activated within 24 to 48 hours.

There’s no denying the fact that share markets involve a fair bit of risks. The prices of securities fluctuate every second. However, if you conduct your trades diligently and smartly, you can make good profits from the share market. It’s crucial to understand the stock market basics before embarking on your investment journey.