The beginner's guide to the stock market — Part 1
Is Stock Market synonymous to gambling??!! Is luck the main player in the stock market ?!
(Not So) Surprisingly, only 2.5% of Indians invest in stocks compared to 50% population in America. To a lame man’s eye, the stock market does seem like gambling where you could double your money within days, or lose your entire savings within hours. Also abound by various scams, like Harshad Mehta scam, Ketan Parekh scam, etc. it is easy to not trust this market.
But this market like every other has its own set of rules that it follows. Once you are familiar with these rules and the dynamics of this market, you are no longer a novice and can easily invest in stocks.
Staring the prime most question, what is a stock? Well stock is a piece of share in a company. It gives you a part ownership in that particular company, whose stock you have bought.
Now there are two types of people who invest in a stock market: Traders and Investors.
Traders buy stocks at the start of the day, when the market opens, and sell them off at the closing of the market the same day. These intra-day trading usually happens in large sums of stocks, where even a rupee difference in the share prices can bring lumpsum gain or loss to the trader.
Investors usually invest in stocks and have an investing time of multiple years. Their investment growth is linked to the growth of the companies whose share they have invested in. Along with choosing the right company to invest in, you also ought to decide your investment strategies, duration of investment, and purpose of investment.
Where to buy stocks?
There are multiple stock exchanges in India but the two major ones are: NSE(National Stock Exchange) and BSE(Bombay Stock Exchange)
But to buy shares, you need to have a DEMAT account and for the buying process, you need to go through a broker. Each of the above stock exchanges has two main Indices, Nifty and Sensex. These indices indicate the movement of the market. These indices actually comprise 50 or 30 top stocks of the country. Nifty comprises of top 50 stocks while Sensex comprises of top 30 stocks of the country.
Basic Movements of Market
Bull Market: when the market is on an upward trend then it is said to be bullish.
Bear Market: When the market is on a downward trend it is said to be bearish.
Evaluation of Companies
Before investing in stocks, one should evaluate the companies whose stocks you are planning to invest in. Companies should be evaluated on both sales and their profit. Because neither as a standalone figure gives the whole picture about the company's health. Along with financial numbers, research about the fundamentals of the company: what are its vision and goals for future, company policies and its future outlook. Along with these, it is also very important to take into consideration industry analysis, economic factors, and sectoral information.
Preferably invest in stocks whose business you actually have a clear understanding of. Also, not every small downfall in the market is not an opportunity to buy or vice-a-versa. For long-term investments, one should stay invested in stocks even when the market falters, since their fundamental business is still the same.
The key factor for succeeding in the stock market is to do thorough research and then invest. Investing should be guided by facts and figures and not by just emotions and recommendations.
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