The past two decades have seen steady growth in the popularity of stock market investing. However, the fluctuation in the market remains an area of concern. These fluctuations could seriously impact your portfolio if you are a beginner and intend to invest funds in the stock market. You may even face losses unless you trade with a strategy. This article is a beginner’s guide on investing in the share market for beginners.
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What is the Stock Market?
The stock market is a platform for exchanges, companies, and investors to list, buy or sell different securities such as equities, derivatives, bonds, mutual funds etc. Generally, it includes various stock exchanges, either formal or over-the-counter (OTC), that facilitate such transactions with the listing of financial instruments.
The stock market functions are primarily managed and monitored by governing authorities such as the Securities and Exchange Board of India. Understanding these functions is vital to comprehending how to learn stock market trading.
Difference between short-term and long-term investment - How should beginners choose?
One of the most confusing aspects of stock trading for beginners is understanding the investment horizon, which is the period they are willing to hold their investments. Typically, there are two investment horizons: Short-term and Long-Term. Here is the difference between the two:
● Benefits of short-term investment: A short-term investment is when an investor buys securities to sell them within 3-4 months. They allow you to make quick profits in a bull market and enjoy the profits for personal benefit. Here, investors don’t have to hold their money for a long time in the stock market and yet make profits if the prices of the securities increase.
● Benefits of long-term investment: Long-term investment, also called value investing, is when you buy securities to hold them for multiple years. Long-term investments ensure that you mitigate stock market risks as they multiply over time. Such investments provide the best value of securities to the investors as the extended period increases the potential for better profits.
● What type of investment should beginners opt for?: Both investment types are ideal depending on the investment goal. If you want to make quick profits and have a high-risk appetite without keeping the invested money for long, you can look toward short-term investments.
On the other hand, if investors don’t want to take on high risks and invest systematically for the future, you can consider value investing. However, a mix of both can be an ideal strategy to understand the share market as a beginner.
A step-by-step guide to the stock market for beginners
The process of how to invest in the stock market for beginners also includes understanding the process of buying and selling securities. Here is a step-by-step guide on how to invest in stock market for beginners.
1. Choose a type of investment: The first step is to choose the type of investment among multiple available options such as stocks, mutual funds, bonds, derivatives etc. It is better to understand each option before deciding.
2. Open a Demat account: A Demat account is vital to hold your securities in electronic form. Therefore, before investing, it is mandatory to open a Demat account. It is wise to compare and analyse various stockbrokers before choosing one to open a Demat account.
3. Research and Study the stock options available: Researching the chosen type of investment is necessary to mitigate losses and improve the profit potential. You can research and study the chosen security through newspapers, TV channels or information available by the stockbroker.
4. Make investments in stocks that best suit your target: You must make investments in stocks or other investment products after setting an investment goal. The goal will ensure you select an ideal investment horizon, investment amount, security and risk appetite.
5. Monitor your portfolio regularly: Once you have invested in a security based on an investment goal, it is vital to monitor the portfolio regularly. Monitoring helps in understanding the performance of your investments, reducing losses and identifying stocks that are doing better for further investment.
6. Keep up with the trends and fluctuations: The stock market goes through regular changes that increase or decrease the price of listed securities. It is essential to understand the direction (trend) of the market by staying updated about the current happenings in the stock market. It can allow for better decisions regarding existing and future investments.
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Q.1: What documents are needed to invest in the share market?
Ans: The documents needed to open a Demat account are your PAN and Aadhar Card along with your bank details.
Q.2: Do you need to open a new account to invest in the share market?
Ans: Opening a Demat account is compulsory to invest in the share market. If you already have a Demat account, you do not need a new account to invest in the share market.
Q.3: Should I make a short-term investment or a long-term investment?
Ans: If your risk appetite is high and you want to earn quick profits, you can make a short-term investment. You can make a long-term investment if you have a low risk appetite, and do not seek quick profits.
Visit Finschool by 5paisa & start learning stock market in details. We offer Stock Market Courses for Beginners, that will help you understand the basics and teach you everything to make your first trade in stock market.
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