How to Invest in the Stock Market?

Stock market is a money-earning platform for those who have the right knowledge to tap the movement of stocks and gain lucrative returns. If you wish to learn the working of stock market, and how to invest in it, then here are a few tips to follow:

    • Identify your Investment Requirements:

      Before placing the order on the stock market, investors must determine their needs and limitations. While determining the requirements, users must consider present as well as the future needs. The same rule is applicable while determining their limitations. Investors must list their incomes and deduct all their expenses along with debt obligations (if any) to find the investible surplus. An important factor that will determine the share market investment strategy is the risk aversion of the investors. Individuals who do not wish to take higher risks would prefer investing in fixed deposits and bonds. Many investors fail to consider their tax liabilities while investing.

    • Determine the Investment Strategy:

      After understanding the personal investment capacity, investors must analyse the stock market scenario to frame an appropriate investment strategy. Individuals must identify stocks that suit their needs. For example, if an investor wants an additional source of income, investing in dividend paying stocks is appropriate. For investors who want to grow their capital, choosing growth stocks is an accurate strategy.

  • Enter at the Right Time:

    Entering the market at the right time is one of the most important share market basics often overlooked by investors. Purchasing the identified stocks at the lowest price level will maximize the potential profits investors can earn. On the other hand, exiting the stock when it is trading at the highest price is profitable.

  • Execute the Trade:

    Traders can execute their orders either through offline or online share trading. They can place their orders on the telephone. If an investor chooses the offline method, he must ensure the broker has understood the order correctly to prevent any errors.

  • Monitor the Portfolio:

    Many investors make the mistake of investing and not periodically checking their investment portfolio. The stock exchange is dynamic and conditions are constantly changing. Tracking your investments regularly is important to exit and entry at the right time. Researching about the companies where traders have an interest is crucial to prevent, or at least minimize, losses in case of any extreme situation. However, this does not mean making decisions with every price rise or fall because patience is a vital characteristic for traders to profit through stock investing.

There are different kinds of stocks traded on the markets. Understanding these various shares before developing the investment strategy to suit personal requirements is recommended.

Things You May Also Like to Know

What is the minimum amount to invest in share?

There is no minimum limit. Your ability to invest is proportionate to your ability to take a risk. It can be a few thousand, or lakhs, or crores.

How much should you invest in stocks first time?

There is no minimum amount. If you are investing for the first time, you can begin with a few thousand.

What stocks are good to buy?

You need to watch out for the stocks that are performing well. Stock performance dependents on

  • Performance of the sector
  • Overall economic health
  • Market news, etc.

Stocks that are showing upward trends should be your target.

When should you buy stocks?

You must buy stocks when their prices are moving upwards. Technical traders use different charts and indicators to understand market movement; when the trends are changing. Based on that analysis, they take their position in the market.

How do you profit from stocks?

Stocks are sold by companies to raise capital from the market. These stocks are traded in the market, and their values go up or down following market trends. When stocks prices of a company are going up, you can earn profit by selling these stocks at a higher price.

Secondly, you can also earn from stocks when companies declare dividends. A dividend is a percentage of the company’s profit that the company distributes among its stakeholders.

How do you withdraw money from stocks?

Once you sell some stocks, the brokers settle them on your behalf. It might take a day or two for the value to reflect in your DEMAT account. You can withdraw it when proceeds from the sale hit your account.

Please note, some brokers may charge some fees to conduct the transaction.

What instruments are traded in the stock markets?

Daily traded financial instruments in the stock market are,

  • Stocks/shares
  • Derivatives
  • Bonds
  • Mutual Funds

Where do I find stock related information?

There are several top-rated websites which can help. Apart from your broker, these websites are a great source to remain up-to-date with daily market news.

What happens in case my shares are short sold?

Short selling was a widely used concept where a trader sells stocks by borrowing them from another investor and repurchase them before the market closes to return to the original owner. During the buying-selling process, the trader earns profit from the price difference. However, in 2001, SEBI has banned short selling. Now, only institutional investors and Mutual Funds are allowed to short sell.

How can you qualify the market as bull or bear?

Market trends are denoted by bull and bear. A bull market is characterised by rising prices, boosted by growing investors’ confidence. When economic trends are strong, and growth potentials are high, the sentiment is reflected in the stock market too. Investors anticipate growth and therefore, invest with confidence.

The bear market lies on the other side of the spectrum. It is characterised by dampened economic growth and poor industry performance which is reflected in reserve investor sentiment.