Stock Trading for Beginners – A Complete Insight to Begin Investing

by admin | August 1, 2024

Last updated on August 1,2024,

Introduction

The stock market is the most volatile domain, where a trader needs to have enough experience to lead trading and gain long-term returns. It is also the most preferred option among those who are good with patience and understand buy/sell. The Indian stock market is the most significant trading industry globally. Recently, the value of the Indian stock market reached $4.33 trillion, surpassing the Hong Kong exchange having $4.29 trillion. 

This record is attracting beginners to trade for long-term returns. Stock trading for beginners can be thrilling but is also equally complex. Many online resources are helping to know trading basics for beginners. These learning resources are best tools to have a strong understanding about stock markets to trade. 

This guide will take you through various aspects of stock trading and help you with information about how to invest in stocks with little money.

What is Stock Trading?

Stock trading involves purchasing and selling company shares to profit from price fluctuations. Traders closely observe the short-term price fluctuations of these equities. Their goal is to buy cheap and sell high. Traders in stocks differ from regular stock market investors in that they are short-term investors rather than long-term ones.

Once you open an online stock trading account, you can buy or sell various securities on this platform, including stocks, bonds, mutual funds, and derivatives. It generally refers to different official and over-the-counter (OTC) stock exchanges that list financial instruments to enable these transactions. 

What is a Share Market?

The share market or the stock market, is a platform allowing stock buyers and sellers interact to exchange publicly traded company shares. Monitored by the Securities and Exchange Board of India (SEBI), regulates the market. In India, the NSE (National Stock Exchange) and BSE (Bombay Stock Exchange) are different exchanges where investors invest.

If any company issues 100 shares, and you hold one share out of the total, you own 1% of a corporation. Shares of various companies are traded on the share market.

Understanding the Process of Trading

When it comes to trading stocks, learning the process is essential. There are two ways to know the trading process-

• Once you open the Demat Account, the amount moves from your bank account to your Demat account when you purchase a share through your trading account.
• If you decide to sell the share, it is moved from your Demat account into the share market. You will have access to the funds from the transaction in your bank account.

As a part of the trading process, below are the steps you need to follow-

• Create a Demat Account:- The very first step to stock trade is to open a demat account at the broker’s platform. Unless you open an account, you won’t be able to trade. Like a bank account, a demat account is used to hold funds for trading. The Demat account maintains the securities you purchase.

• Know Stock Quotes:- Demand and supply, economic reports, and essential elements influence stock prices. Learn more about these topics to improve your comprehension of stocks and the markets. This will assist you in figuring out when to enter or exit from a trade.

• Ask and Bid:- The bid price is the highest amount you are willing to spend on a stock. This is the exact reverse of the asking price. It stands for the lowest amount the vendor will accept for the stock. Selecting the appropriate request and bid price ensures a successful trade.

Top 5 Trading Terms Trading Beginners should know.

Stock trading for beginners involve some trading terms, knowing which will help you trade easily. Some of these terms are-

• Trading CFDs:- CFDs (Contracts for Difference) called as derivatives allowing traders to trade according to price movement. Here, traders are allowed to sell changes in value of an underlying asset by using contracts for difference or CFDs. To accomplish this, you would consent to trade the difference in the asset’s price between the opening and closing prices. What you stand to earn or lose at these two points is what makes a difference.

• Going Long – Going Short:- Going Long (buying) is a market prediction depicting a rise in the market price. Going Short, on the other hand, is a selling where the prediction is about falling. However, since there is no cap on how high a market’s price can climb, short selling is dangerous because losses could be infinite if risk isn’t managed appropriately.

• Margin Trading:- Margin trading is a financial strategy where investors borrow money to increase their purchasing power, increasing the potential profits or losses they can make. It involves using borrowed capital to trade larger positions than one’s own capital allows.

• Risky Domain:- The stock market can be a risky domain because you may lose your invested money if the market falls. Risk is the equivalent of the potential for financial loss. It is imperative to comprehend the dangers associated with trading, mainly when using margin. 

• Volatile Nature:- When markets move quickly, it’s referred to as volatility. It is one of the trading basics for beginners to know when stock trading. This usually happens when there are announcements, events, or changes in market sentiment. Although it entails more significant risks, if you have a substantial trading plan with extensive risk management strategies, you can also uncover possibilities.

Different Types of Stock Trading

As a part of beginner guides for trading, one should know that different stock trading options are available. Some of these are mentioned below-

• Day Trading:- Day Trading involves purchasing and selling stocks on the same day or within a few hours. In the stock market, day trading is defined as any weekday between 9:15 am and 3:30 pm. In day trading, people hold stocks for a few hours or minutes. When engaging in such a trade, a trader must conclude their operations before the market closes for the day.

• Scalping:- Scalping is also called as micro trading. Both intraday trading and scalping fall under intraday trading. One of the goals of scalping trading is to secure tiny earnings, typically between a dozen and a hundred, on a single market day. But not every deal results in profit; occasionally, a trader’s losses could outweigh their gains. In contrast to day trading, the holding period of securities in this scenario is shorter, and people retain equities for a maximum of a few minutes.  

• Swing Trading:- This type of stock market trading aims to profit from short-term patterns and trends in stocks. Swing trading aims to make money on stocks within a few days after purchase. Traders use technical analysis to assess the movement patterns in the equities they track to execute their investing goals effectively.

• Momentum Trading:- In momentum trading, a trader takes advantage of a stock’s momentum, which is a significant move in the stock’s value, either up or down. A trader looks for equities that are breaking out or are about to break out to profit from this momentum. When there is an upward trend, the trader sells the stocks they are holding, resulting in returns that are larger than average.

• Position Trading:- Position trading involves traders looking to make a profit in equities through long-term and holding on to shares. This type of trade is perfect for those who are not regular market participants or professionals. 

Different Types of Demat Accounts for beginners

For beginners, there are two types of Demat accounts are Regular and Basic Services Demat Account (BSDA).

What is BSDA?

BSDA (Basic Service Demat Account) was introduced in 2012 by SEBI designed by investors or beginners making little investments for trading. It is best for those investors who don’t prefer investing regularly on bonds, ETFs, mutual funds, etc. Additionally, it lessens the workload for investors who own smaller portfolios across depositories of less than Rs. 2,00,000 Lakhs in their DEMAT accounts.

Earlier, those who wanted to try their hand at investing only to get a feel for it created BSDA accounts. Furthermore, those who are risk averse might not want to invest heavily in equities. Adding a few stocks that aren’t worth several lakhs to their investment portfolios could be their way of diversifying it. A BSDA account is the ideal answer for these individuals, as opposed to discouraging them from investing altogether. 

What are the Benefits of BSDA?

BSDA comes with multiple benefits including cutting down the costs. Some of the benefits are-

All charges for physical statements are mitigated.

There are no dematerialization charges.

Annual maintenance charges that amount between Rs. 600 and Rs. 800 are reduced.

Who is Eligible to Open BSDA Demat Account?

To open a BSDA Demat Account, one has to fulfill certain eligibility criteria. Some of these are-

1. The account should belong to the investor alone. 

2. The investor should have only one Demat account. 

3. Under the BSDA category, investor can maintain a single Demat account. 

4. The BSDA shares’ total value should never be more than Rs. 2 lakhs. 

5. The investor shouldn’t be the account’s first holder if it’s a joint account.

Understanding the Difference Between Regular Vs. Basic Services Demat Account

There are not much of differences between regular vs. BSDA in stock trading. Investors living in India must have a regular demat account for the trading purpose. For trading beginners who only trade with equities shares, the regular demat account is perfect. However, it is not necessary to have a standard demat account if you intend to trade futures and options. This is so because options and futures have an expiration date and don’t need to be kept on hand.

Basic Service Demat Account (BSDA), on the other hand, carries no maintenance charges like the regular demat account, if you are holding less than Rs 50,000. But if the holding is between Rs 50,000 to Rs 2 lakh, the charges will be around Rs 100 pa.

Difference Between Demat and Trading Account

Before you start trading, it is important to know the difference between demat and trading account.

Factors	Demat Account	Trading Account
Purpose	The main purpose of a demat account is to hold and store securities digitally. It guarantees the convenient transfer and storage of securities.	Trading account allows you to buy and sell stock orders in the market
Transactions	The account allows to transfer and settle securities	The account allows actual trading of securities along with buy and sell orders
Interface	You can view your account using mobile app or site of the broker’s platform	Trader can view the account on the website or online trading platform of the broker
Nature	Demat account operates like the savings account. A Demat account enables investors to keep financial products in an electronic or dematerialized form that are debited and credited appropriately, just like a savings account does.	A trading account operates more like your existing bank account. To trade in the stock market, you must both a trading account and a Demat account.

How to Invest in Stocks for Beginners with Little Money?

Stock trading for beginners is a big step but should keep in mind that the nature of the market is volatile. One shouldn’t invest vast amounts of money at once to earn big, as it can backfire. The best way is to invest in stocks with smaller amounts. Let us see how to invest in stocks for beginners with little money-

• Be Clear with Investment Goals:- One of the points to consider on how to invest in the stock market is to have a clear investment goal. The objective is crucial since it determines the kind, duration, and investment mode. Before you begin stock trading keep your long-term investment goals. Moreover, compared to short-term investments, long-term investments have lower risk. Therefore, having a long-term perspective, creating goals, and making little investments regularly is always good.

• No Place for Emotions:- An essential element that significantly impacts an investor’s decision to invest is emotion. Keeping emotions aside is one of the vital lessons on how to trade in the share market. When you plan to stock trade as a beginner, keep your emotions aside. You shouldn’t give up on investing as soon as you start to experience any loss because it is a natural component of long-term investing. Knowing that you have made wise stock investments, you should hold onto your positions rather than sell and continue making further investments.

• Consider Risk Tolerance:- Determine your level of risk tolerance before making any financial investments. Two of the critical aspects to consider when you stock trade is- your perception of the risk and your awareness of your tolerance threshold. Invest solely in blue-chip companies, typically considered safe if you are risk averse. You can buy volatile stocks if you have a substantial risk appetite.

• Concentrate on Stock Fundamentals:- There are certain fundamentals of stock trading a beginner should be aware of. You can only make profitable investments if you understand the stock market basics and do in-depth stock analysis. Making wise investing decisions starts with understanding the fundamentals. Possessing pertinent knowledge will also enable you to understand the risk involved in an investment.

How much a Beginner should Invest in Stock Trading?

Stock market trading for beginners can be risky. You should know how much you must invest for stock trading to avoid loss. There are two things to consider when it comes to stock trading investment-

• Financial Analysis:- Using corporate reports and non-financial data, such as industry comparisons and projections, can help you know the company’s financial condition before investing. 

• Technical Analysis:- In this analysis, traders can use the two-dimensional chart to know the historical movement of prices. It uses volume charts and past share price data to forecast future prices.

How to Start Trading for Beginners?

Strategic trading can help traders have the freedom to choose the stock and have a solid financial goal. There are specific steps to know how to start trading for beginners. 

Finding the Right Broker:- You must first register as a novice with brokerage companies or Depository Participants (DPs). Selecting the appropriate DP is crucial since ordinary investors will use its interactive interface to purchase, hold, and sell equities. Open an electronic 2-in-1 Demat and trade accounts with a professional DP to make trading and investing easy. You may also quickly view all of your positions using it.

Submitting Documents:- Once you open your demat account, you need to submit some documents to start trading. Some of these documents are-

• Permanent Address Proof
• Identity Proof
• Identity Proof
• e-KYC

Link Your Bank Account:- Next, you must link your bank account with your demat account for easy fund transfer. Ensure you connect the correct and active bank account to avoid issues later.

Use Market Orders and Limit Orders:- Once the account is opened and linked with the bank account, you can start trading stocks via the website or app of your online broker. Several order type options will be displayed to you. This controls the course of your transaction. The two types of trading orders are-

• Market order: Purchases or sells stock at the best price.
• Limit order: Purchases or sells shares only at a specific price you choose. The maximum amount you are ready to spend for a buy order is the limited price. The order will be fulfilled if the stock cost drops to that level or below. 

Practicing with a Paper Trading Account:- One of the essential beginners’ guides to trading is to trade without money or engaging in paper trading. Select a stock and monitor its performance over three to six months. Reputed online brokers offer paper trading tools, helping beginners to study and practice. Before risking real money, users can test their trading abilities and establish a track record through virtual trading with stock market simulators.

How to Learn Trading Step-by-step?

Stock trading for beginners requires a proper learning process. You need to follow the right steps to learn trading. These are-

Choosing an Online Trading Account:- As a beginner, you need to first register with a broker. Ensure the broker is registered with SEBI and you get the guarantee of having safe stock trading. An investor must register for a trading account and a Demat account, which must be connected to their bank account to facilitate online money transfers to start trading in the stock market. 

Verify the brokerage house’s legitimacy before opening these accounts. Additionally, ensure the broker’s platform allows you to trade shares, mutual funds, IPOs, etc. 

Keep Educating Yourself:- Before you place your first order on the stock market, you must be familiar with trading words such as IPO, portfolio, quotes, yield, index, sector, volatility, etc. Check out stock advisory sites to learn more about the terminology used in the stock market and related news.

Practice on Online Stock Simulator:-Using an online stock simulator is an intelligent idea to practice your skills without taking risks. You can learn more about investment techniques through virtual stock market games. 

Using the Right Stock Advisory Service:- A professional stock advisory service offers beginners complete assistance with the trading basics. These advisory platforms have all the learning tools using which beginners can practice and gain confidence to trade.

Conclusion

Although the process of stock trading for beginners is simple, learning the basics and investing slowly are two essential things to remember. Before making any stock market investments, you must clearly understand your financial objectives and time horizon. As a beginner in the stock market, having access to sophisticated tools, stock trading advisory, and comprehensive real-time stock analysis data is crucial for minimizing risk.

FAQs on Stock Trading for Beginners

Q.1. Which stocks are best for Beginners?

Ans:- For beginners to trade safely, there are some stock options. These are-

• Choose large company stocks because they are least effected by volatile market.
• Always go for company with good profit balance sheet. They are more equipped to withstand a market downturn. 
• ETFs, or exchange-traded funds, are another excellent option. These funds move in tandem with the benchmark index, which is linked to market indices.

Q.2. How can beginners enter stock?

Ans:- The very first step to enter stock is to open a demat account with a registered broker. Although there are many various types of brokers, novices should usually choose with one that is simple to use and doesn’t require a large initial payment.

Q.3. What Is the Difference Between a Full-Service and a Discount Broker?

Ans:- There are two types of stock trading brokers-

• Full- Service Brokers- These brokers offer a wide range of financial services, such as retirement, health, education, and other financial advice. 
• Discount Brokers- These brokers offer simplified range of service, allow single trading, and carry good informational tools. 

Q.4. Why do share market price keeps fluctuating?

Ans:- There are different reasons on why share market price keeps fluctuating. Some of these are-

• Company Earning
• Investors’ perception of the company
• An earning base, like earning per share.
• A valuation multiple, such as the P/E ration

Q.5. How risky is stock investing?

Ans:- There are several risks involved with stock trading. There is always a chance that your investment’s value will decline over time. Because of this, risk management is a crucial factor for investors to consider while attempting to meet their short- or long-term financial objectives.

Q.6. How should a beginner start trading?

Ans:- Beginners should start trading by:

• Learning the basics of stock markets, investment instruments, and trading strategies.
• Having clear financial goals and risk tolerance.
• Use paper trading or demo accounts to practice without real money.
• Select a reliable brokerage platform for trading activities.

Q.7. What trading is best for beginners?

Ans:- For beginners, long-term investing or swing trading may be suitable. Long-term investing involves holding assets for an extended period, while swing trading aims to capture short to medium-term price movements. Both approaches allow beginners to manage risk and gain experience.

Q.8. How to buy stocks for beginners?

Ans:- To buy stocks:

• Open a brokerage account.
• Research and choose the stocks you want to invest in.
• Place an order through the brokerage platform.
• Specify the number of shares and order type (market or limit).
• Monitor your investments regularly.

Q.9. What’s the best trading platform for beginners?

Ans:- Choosing the best trading platform for beginners depends on user preferences and specific needs. Here are a few platforms known for their user-friendly interfaces and educational resources:

• Zerodha: Known for its simplicity and educational resources.
• Upstox: Offers a user-friendly interface and educational content.
• Groww: Ideal for beginners with a straightforward interface.
• Angel One: Provides a user-friendly platform with educational support.

Q.10. What is the golden rules of trading?

Ans:- Golden rules of trading include:

• Risk Management: Only risk what you can afford to lose.
• Diversification: Spread investments across different assets.
• Continuous Learning: Stay informed and adapt to market changes.
• No Emotions: Do not let emotions come in between
• Patience: Allow investments to grow over time.
• Avoiding Overtrading: Quality over quantity in trades.

Following these golden rules helps build a solid foundation for successful and sustainable trading.