Share Market Rising inflation and soaring prices become difficult for an individual to live an existing lifestyle with each passing year. It is important to invest or look for alternate sources of income in order to secure your future financially. The stock market is one of the popular platforms for investment, as it provides lucrative returns.
Investment in the share market is risky but it can be turn out to be profitable if it is done in proper method. If you are beginner in the stock market, the very important first step is to understand the basics, how stock market works, types of stocks, and the do’s and don’ts of stock market. The information given below in this blog will be helpful for you to start investing in the stock market.
What are stocks?
A stock is a type of security that signifies the state of ownership in a corporation and claim on the respective part of a corporation’s earnings and assets. Corporations issue stock to raise fund to run their business. Stocks are bought and sold on stock exchanges, though there can be private sales as well.
Type of Stocks
There main types of stock: common and preferred.
- Common Stock: It is a security that represents ownership of shareholders in a corporation. Shareholders having this type of shares have the right to elect the board of directors, which represents them and decides how the profits would be utilized. In the case of a company goes bankrupt, the shareholders of common stock do not receive their money until the preferred shareholders and creditors have received their respective share of the leftover assets.
- Preferred share: The shareholders of this type of security receive a specific dividend at predefined intervals. One of the advantages of owning this type of share is a dividend paid to the shareholder of preferred share is generally before the dividends are paid to the shareholder of common stock.
How do the stocks work?
In a company, if the ownership is divided in to 500 parts, the profit and loss will also be divided into 500 parts. Later on, it can be decided whether the profit is to be reinvested in the business or a part of them is to be shared among the shareholders. In case of any owner decide to sell his share of ownership, and the corporation is very large, it can come out with an IPO (Initial Public Offering) where the shares are sold to the public directly in the primary market. After the completion of IPO, the shares get listed on the stock exchanges, from where people can buy and sell shares. The movement of stock depends on the demand and supply concept. It also depends on the company’s management, future prospects, and growth.
Beginner’s guide to investing in the stock market:
The following guide (Do’s and Don’ts) can help you to start investing in the stock market as a beginner.
- Prefer market intermediaries who are registered with stock exchanges.
- Make sure that you have very clear communication with broker, agent and intermediary.
- Before you start investing, read all offer and risk disclosure and documents.
- Get proper knowledge of right trading techniques, technical analysis, risk assessment.
- Strictly work with discipline, Risk Management Techniques.
- Before investing in the stock, always do proper research and analysis.
- Learn to control greed and emotions.
- Do not believe in News, Media reports and speculations, especially avoid speculation for day trading.
- Avoid investing in Penny stocks.
- Don’t deal with brokers, sub-brokers who are not registered with SEBI and stock exchanges.
- Do not sign/agree into consideration any documents without reading and understanding of terms and conditions.
- Don’t trade without getting proper knowledge of technical analysis especially when you want to trade in the derivatives market.
As a new investor, when you are taking your first step towards learning the basics of stock trading, there are many points that you should consider which are explained below that will help you to get an answer of “How do I get started?”
Open a Demat Account
Search for a good online stock broker and open an account. Most of the traders provide free software and research tools – which you can use for place order, technical analysis. There are many brokers that offers best tools and services.
Books and articles are great source of information. There are the number of books and articles related to the stock market, available online and offline. Books are the great source of knowledge and information. Which helps you to get an education of stock market.