The stock market reflects the economic condition of a nation and it acts as a backbone of the financial system. Like any other system, investors act as an important element in the stock market. No stock market transaction can be done without any investor. In financial terms, awareness among investors is termed as financial literacy.
Under the Ministry of corporate affairs and the Securities and Exchange Board of India, special investors awareness plans are executed in order to impart knowledge to novice and experienced investors. These plans intend to protect them from fraud and malpractices. Prior to this knowledge and information, young investors need to know basic concepts regarding investment. These can be related to opening a demat account, brokerage services, investment tips and precautions, learning guides to trade, and other such aspects.
As a young investor, if you are going to trade in the stock market for a short or long period, you need to understand several concepts. This article will guide you on how to invest in the stock market.
Following are some important concepts that you should know prior to starting a financial venture:
1. What is stock market trading?
Due to herd mentality, often college students and other young professionals start trading in the stock market without knowing what exactly the stock market is. Stock market trading is buying and selling of financial securities of different companies that are listed on the stock exchanges. These financial securities comprise stocks, bonds, derivatives, and other securities. Trading in the stock market entails profits and losses simultaneously due to market fluctuations. To earn appropriate profits, effective strategies are needed. With awareness about the market, you can make effective strategies to trade in securities.
2. Essential requirements for stock market trading
Just like a banking transaction, you need a basic pathway to float your funds in the stock market. Buying and selling securities require a demat account. ‘How to open a demat account’ is a key issue before young investors, especially newbie investors. You can open a demat account with any financial and stock market broker using the following steps:
- Visit the broking firm’s websites to understand their policies and account opening formalities. In India, many financial institutions, NBFCs and professional brokers offer online demat accounts with low demat transaction charges.
- Analyse numerous services and charges of brokers. With the best broker, open your demat account by filling an application form. Relevant documents are needed to be shared with brokers which include ID proofs, residential proof, income status, bank details, and other information.
- Successful completion of the aforementioned step leads to the KYC process in which the broker verifies your profile with documents. Completion of this process provides a unique investor and client ID which ensures trading and investment in the stock market.
3. How to start trading in the stock market:
Along with opening a demat account online, You should know trading techniques and procedures of trading. Normally, you can start your buying and selling with your demat account. Demat account gives you an opportunity to select the securities you wish to trade in.
- With online trading, you can buy securities through a demat account with just a click on the buy option.
- Funds in wallet can be transferred with digital banking payment portals. You can add funds in wallets of accounts with which you buy stocks or other securities.
- In short-term trading, if you feel that you have earned some profits, you can sell the stocks at a high price in order to earn some returns.
Trading as a young investor requires varied information of the trading procedures and techniques to place profitable orders.
Proper information about the market would explore you to correctly buy and hold the securities.
Open Demat account with Zero Brokerage
As a trader, you need to open a demat and trading account with stockbrokers to make trade orders and clear the transactions with clearinghouses. A trader can not connect to stock exchanges directly to place a buy/sell order. Your broker executes your trade order with the stock exchange just after you place it. For this trading facility, brokers charge a brokerage fee.
Demat accounts and trading accounts involve different charges depending on their usage. The trading requirement for different investors varies.
Zero or Low Brokerage for Delivery Trade
The concept of zero brokerage was brought to encourage individuals for stock market participation. It is a plan offered by brokers for delivery trades.
A brokerage is the primary concern of day traders who place trades frequently. Day traders place hundreds of trades within one trading session. Therefore, a day trader looks for low brokerage rates or flat brokerage plans irrespective of trade values. To save on brokerage, traders prefer a discount broker.
A long-term investor need not worry about brokerages. A long-term investor or positional trader can open a demat and trading account with a basic brokerage plan with a discount broker for delivery trades. Many brokers are offering free-zero brokerage for delivery trades.
Thus, you may open a demat and trading account with a discount broker for a low brokerage trading account.