Stock Market Basics Every Beginner Investor Should Know

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You can buy stocks online even if you are a beginner in the stock market. If you are a novice investor in the stock market and want to make money, you should know the stock basics. There are online classes and training programs that let you understand these basics.

You won’t know everything about the stock market right when you’re beginning. You can attend beginners classes such as these classes will provide you with required information.

Pre-requisites before you start investing: Stock market basics for beginners

There are a few pre-requisites that are necessary before you venture into the American stock market. There are a few things that you should possess before you begin. You should have a bank savings account, a Demat account, a laptop, or a smartphone and an internet connection. You need to submit your PAN card, Aadhar card, a cancelled cheque, or a bank statement and a passport size photograph of yours for opening a Demat account and trading account. There are a few basic pieces which entails everything about stock market basics. First of all, you should get rid of all your liabilities related to your bank loan, credit card dues, personal loan, etc. Whatever you’re going to earn from the stock market trading that will be eaten up by your liabilities. You should invest from the fund that is lying idle. Don’t invest from the fund which has been created through hard work and that’s savings for the future contingencies. You should invest in such a way that it never affects your routine life. You should always have some cash in hand. This cash will be like your emergency fund. Don’t invest all that you have till your last penny. You will be in trouble when you have a financial emergency such as a medical problem. There are a few steps you’ve got to take before investing in the stock market.

  1. Have an investment goal: You should be clear in your mind whether you want to multiply your savings to beat the inflation and to get higher returns. Maybe you want to earn passive income through investing in dividends. Every goal has a different time horizon. Your goals could be buying a car, a house, higher education, marriage in the family, retirement plans, etc. The retirement fund requires a longer timeline whereas buying a car has a shorter one. Your goals will tell you how much you should invest and for how long.
  2. Have a strategy: You should have an investment strategy in your trading basics. You can start with a small amount that you can invest every month like a SIP. You may invest a part of your savings lump sum in some term deposit schemes also but that won’t be part of the stock trading. If you want to invest per month, decide on how much you will invest per month.
  3. Do some reading: You should read books like The Intelligent Investor by Benjamin Graham, One-up on wall street by Peter Lynch, books by Philip Fisher, and so on.
  4. Select a stockbroker for you: There are two types of brokers. There is a full-service broker who is a traditional broker. They advise you on trading, product research, and other services like stocks, commodities, currency, etc. They charge you a commission on every trade they do on your behalf. These are online brokers. They could be Kotak Security, ICICI Direct, Motilal Oswal, Groww, Zerodha, Upstox But you should choose a discount broker with low commission charges and they are equally efficient.
  5. Do your research on common stocks: You can begin by being aware of the companies you know of and how their reputation is and how they are doing in the stock market. You can do some research on them. You can enlighten yourself on how to do some fundamental research on some companies. Google will help you.
  6. Keep your spreadsheet: You can make use of a spreadsheet that will help you to keep track of your research and investment. You can mention the names of the companies and their stocks in your spreadsheet. This will be a platform for you to keep a track of your performance.
  7. Exit plan: You should know when you want to come out of investment or when you want to redeem or book profit. It depends on the needs and the scenario. You may exit with your profit having reached your goal. If you need money in an emergency, you must exit immediately. You may come across a better avenue for investment and you may decide to exit. There may be a scenario when your chosen stock is not performing as expected or you have a better stock in view. Either way, you may come out of it.
  8. Don’t put it all: Don’t invest all your money in the stock market when you are beginning. You should start with a small investment. It will be less risky. With experience and learning, you may scale up your investment.
  9. Diversify the portfolio: You should not put all your eggs in one basket. You should invest in different sectors altogether. You have to do some research on the sectors and how they are performing in the stock market.
  10. Blue Chip stocks are good: The stocks of reputed companies are known as blue chip These stocks are relatively much safer but the return on investment is conservative compared to other inferior companies. These companies are less volatile and your money invested in them is much safer.

You can begin with an SBI share which will give you a good business if done with expert supervision or with your training that you’ve undergone in stock trading.

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