How to invest in Stocks? – Tips for Beginners
This blog is a beginner’s guide to investing in the stock market.
What is stock market?
Stock market exchange is a platform for companies and investors to list, buy or sell various securities like equity, derivatives, bonds, mutual funds etc. Typically, this includes various stock exchanges, either formal or over-the-counter (OTC), that facilitate such transactions with the listing of financial instruments.
Stock market functions are mainly managed and monitored by governing authorities such as the Securities and Exchange Board of India. Understanding these functions is important to learn stock market trading.
What is The Difference Between Short-Term and Long-Term Investment – How Should Beginners Choose?
One of the most confusing aspects of stock trading for beginners is understanding the investment horizon, which is the period they are prepared to hold their investments. Generally, there are two investment horizons: short-term and long-term. Here’s the difference between the two:
● Benefits of Short-Term Investment:
A short-term investment is when an investor buys securities with a view to sell them within 3-4 months. They allow you to take quick profits in bull markets and enjoy the profits for personal gain the investor does not have to keep his money in the stock market for a long time and does not need to take profits even if the prices of the securities move up.
● Benefits of Long-Term Investment:
Long-term investment, also known as value investing, is when you buy securities over a number of years. Long-term investments ensure that you reduce stock market risk . Such investments provide the best value of securities to the investor as the extended tenure enhances the potential for better returns.
● Which type of investment should beginners opt for?:
Both the investment types are ideal depending on the investment objective. If you want to make quick profits and have high-risk potential without keeping the money invested for a long time, you can look for short-term investments.
On the other hand, if the investor does not want to take much risk and wants to invest systematically for the future, then you can consider value investing. However, a mix of both can be an ideal strategy to understand the stock market as a beginner.
How to invest in Stocks? | Step by Step Guide to Stock Market
The process of investing in the stock market for beginners also involves understanding the process of buying and selling securities. What follows is a step-by-step guide on how to invest in the stock market for beginners.
1. Choose a Type of Investment:
The first step is to choose the type of investment from the many available options like Stocks, Mutual Funds, Bonds, Derivatives etc. It is better to understand each option before making a decision.
2. Open a Demat Account:
A Demat account is important for holding your securities in electronic form. Hence, before investing, it is compulsory to open a Demat account. It is wise to compare and analyze various stockbrokers before choosing to open a demat account.
3. Research and study the available stock options:
Researching the chosen type of investment is important to minimize losses and improve profit potential. You can research and study the chosen security through newspapers, TV channels or information provided by the stockbroker.
4. Invest in stocks as per your goal:
After setting the investment goal, you have to invest in stocks or other investment products. The goal will ensure that you choose an ideal investment horizon, investment amount, safety and risk appetite.
5. Monitor your portfolio regularly:
After investing in a security based on the investment goal, it is important to monitor the portfolio regularly. Monitoring helps in understanding the performance of your investments, minimizing losses and identifying better performing stocks for further investments.
6. Continue to trend and fluctuate:
The stock market goes through regular changes which increase or decrease the price of the listed securities. It is necessary to understand the market direction (trend) by staying updated about the current happenings in the stock market. This can allow for better decisions regarding current and future investments.