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Things To Know Before You Start Trading and Investing in Stock Market

Investing in the stock market is fun, but if you want to make a profit in the stock market, you need to learn all the basics. There are many other things that you need to do before you start trading and investing in the stock market. Some of these prerequisites are as follows –

Trading

Understanding Share Market

Before moving further and starting your trading and investing, you must know the share market and how it performs. A share market is where stocks, bonds, securities, and other financial instruments are publicly issued for trading. Here, the buyer and sellers meet for the exchange of the documents. The documents validate your ownership of the companies whose shares you have purchased.

There are two major stock markets in India. They are Bombay Stock Exchange BSE and National Stock Exchange NSE. Though BSE is the oldest stock exchange, NSE has become the largest stock exchange with maximum cash trades. There are three leading US stock exchanges: New York Stock Exchange NYSE, National Association of Securities Dealers NASDAQ, and American Stock Exchange AMEX. Due to this wide array of stocks in several markets, you must learn how to select stocks for intraday to make huge profits.

Documents Required

For investing, you need to open a Demat account first. For opening a Demat account, you need to submit a few essential documents.

You must have your identity proof and address proof; it can be

  • PAN Card
  • Aadhaar Card
  • Voter card
  • Cheque Book of your active bank account
  • Passport
  • Income Certificate

Demat Account

It is similar to a bank account. A Demat account holds all your purchased shares and details of sold shares in electronic form. It also has all financial instruments, like bonds, mutual funds, government securities, or Exchanged traded funds ( ETFs). Demat accounts are safe to store deposits in any depositories, as these repositories are regulated by the SEBI.

Trading Account

Trading account and Demat account go hand in hand. You must know the difference between trading and Demat accounts. Both are two different things, but they both deal with shares. So, a trading account is an account on which we buy and sell any shares or securities as per our wish.

You cannot start trading until you have your Demat account. Therefore, to start your trading and investing, create your accounts on both Demat and trading account. If you are into trading, you should check the intraday trading margin that your trading account allows you to have.

Different Charges in The Stock Market

Once you have created your Trading account with an authorized broker platform, you can buy and sell shares. But there are charges that you have to pay. Let’s know about them briefly.

Transaction Fee

Every broker takes a fee in return for the services they provide you for trading. To prevent these charges, you can create your account with brokers with zero brokerage charges, or even a discount brokerage will save you a lot of money.

With the origin of this discount brokerage, transaction costs are rapidly declining. Not only this, but a few other brokers also collect dues and taxes for every transaction, such as SEBI Charges, GST, Securities Transaction Tax (STT).

Demat Charges

When you open your Demat account through brokerage platforms, they do not possess any of your securities. Your account is operated by central or national securities depositories like CDSL or NDSL. These depositories need a nominal annual charge for maintaining your Demat account. The costs usually vary from 100 Rs to 800 Rs.

Some Financial Instruments You Should Know

Equity Shares

Companies issue these shares. It also authorizes you to obtain profits from the companies as dividends. Equity shares have higher risks and, thus it gives more return. Equity shares are the highly volatile securities.

Mutual Funds

Mutual funds are a group of stocks generally operated by financial institutions known as AMC. Mutual funds have different financial instruments like bonds, stocks, securities, etc., in one place collectively. The earned profit is distributed to the investors based on the number of units.

Bonds

Bonds represent loans that are given to the issuer by the investors. They are called debt instruments or fixed income instruments and have the lowest volatility.

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