UNDERSTANDING STOCK MARKET 101

Stock market

Most people realize the importance of having multiple income streams only in the tough times when they don’t have enough money, or lose their job or when their business fails. But it doesn’t matter whether you realize it during the tough times or you realize it later. The fact that you are reading this tells that you want something more and you are keen to learn and to earn more.

Stock Market is one of the wonderful ways to grow your money. If the thought of investing in the Stock Market and losing your money scares you, don’t worry because you are not alone. The best thing about the stock market is that you don’t necessarily need to be a businessman or an expert to start. It doesn’t matter whether you are a student, a housewife, doctor, engineer or anything. You just need to have an open mind to learn. Before starting to understand what stock market is, first let us clear some of the common myths most people have at the beginning itself:

• Stock Market will make you rich quickly.

NO! There is no such thing as get rich quick. You will have to be patient in the stock market. Don’t expect that your money will grow in just a few days or months. 95% of the people lose money in the stock market because they want to get rich quickly and because they fear at the first sight of any loss. Make this point very clear in your head before investing your hard earned money in the stocks.

• You need a lot of money to get started in the Stock Market.

This is the most common myth that many people have and this is the reason that keeps people away from investing in stocks. You can find stocks which cost as low as Rs.1 per share. So, never think that you don’t have enough money to invest. 

• I’m too young or I’m too old to invest.

Your age isn’t really the problem, your laziness is. People are lazy and don’t want to put the time and effort that is required and that’s why they say “I’m too young now, I will start later”, or “Oh I’m too old now and I don’t need to invest.” These reasons just seem to be silly. The best time to start investing is HERE and NOW.

• But, the Stock Market is too risky to put my money in

Honestly, the stock market or the stock itself isn’t risky. Risky is the person who is investing. It all depends on you. You can definitely make money in stocks if you are willing to put some effort and be patient enough. Nowadays with an increase in the number of bank frauds, your money is not 100% safe in your banks too. On top of that, if the interest rate of the bank is lower than the inflation rate (which generally is the case), you are actually losing your money just by keeping it in the bank. Take your decision wisely.

Now, after clearing some of the common myths, let’s look at what a stock and stock market is.

What is a Stock or Share?

Now, don’t get freaked out by this word. I understand that this would be an alien term for you if you are new. Even I used to get freaked out after listening about stocks. But, it’s a very simple term to understand.

A Stock or Share is simply getting a part of a company once you buy a stock of that company. It’s similar to having a piece of the cake. The cake (i.e. company) can be divided into any number of pieces (i.e. shares) and you can buy as much pieces as you want (1 or even 1000000) by paying the price for each piece. Suppose a company has a total of 100 shares and you buy 1 share, then you own 1% of the company.

Buying a share gives you an opportunity to become a part owner of your favorite companies such as APPLE, RELIANCE, GOOGLE and many more companies that are listed on the Stock Market.

Stock market

What is a Stock Exchange?

A Stock Exchange is the place where individual investors as well as big investors come together for buying or selling the shares of the companies. Remember that when you are buying shares of the company, you are not buying it directly from the company. Instead you are buying it from someone who already has the share of the particular company and wants to sell it.

Which company’s shares can you buy?

You can only buy shares of companies that are listed on the Stock Exchange. Most of the big companies like RELIANCE are listed on the Stock Exchange. But there are a few renowned companies which are still not listed like AMUL, FLIPKART, etc. There are many factors that need to be considered by the company before listing on the exchange and it depends from company to company whether they want to be listed on the exchange or not. You can easily check the name of the listed companies on the exchanges’ official website.

How to Buy Shares?

You can’t directly go to the stock exchange to buy shares of a company. You have to do it through a broker. Yes, there is a plan known as Direct Stock Purchase Plan (DSPP) where you can buy stocks directly from the company. But let’s not get into that as it is complicated and not all companies offer this plan. So far investors like us, it’s best to buy through a broker.

When you place a buy or sell order through a broker, the broker executes these orders on the stock exchange on your behalf. There are two types of brokers that you can choose from:

• Discount Broker:

The commissions charged are very less and in the long run it’s very beneficial and cost effective. A discount broker is most suitable for people who will put some effort and pick stocks on their own because these types of brokers don’t offer personal advice and recommendations. Examples are Zerodha, Upstox, etc.

• Full Service Broker:

These types of brokers provide customers with investment advice and other services and they charge a fee for that. The costs incurred will be more in the long run. It is most suitable for people who have a good amount of money to invest and don’t have enough time to pick stocks on their own. Examples are ICICI Direct, HDFC Securities, etc.

Conclusion:

So, now you got a basic idea about the stock markets. These are the basic things that you need to know before getting started in the stock market. In stock markets, you should accept the fact that you will face losses. You should understand that fluctuations in price are part of this game and you should keep your emotions in control. You have to be patient and invest for the long term to be really successful in the stock market.

There are many things to learn, and you will learn it with time. The main thing is to get in the field and start playing the game. Once you start, you get the experience with time. You can’t gain experience just by sitting on the side-lines.

!! GOOD LUCK !!

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