How to Start Investing in the Stock Market?

People look to invest their surplus income to further grow their wealth. The stock market is a great place to do just that. Strategic trading on the stock market can help you supplement your income - disciplined trading over time can help you replace your income, as well. Trading on the stock market gives people the freedom to work from wherever they want, whenever they want.

Trading stocks on the stock market helps people grow their retirement funds, finance business expansion, and achieve other financial goals. Today, with the help of electronic trading accounts, anyone can start trading.

Follow these 5 steps to start investing in stocks today:

  1. Find the right broker -

    In India, people trade stocks on the following two platforms:

    a) Bombay Stock Exchange(BSE) -Established in 1875, it’s the oldest stock exchange in Asia.

    b) National Stock Exchange(NSE) - This is the largest stock exchange in India.

    However, to gain access to these exchanges, retail traders need to register with brokerage firms or Depository Participants(DPs) first. It is important to find the right DP as retail investors will buy, store, and sell stocks through them. They will provide the interface through which you will interact with the stock market. It is preferable to open an electronic 2-in-1 Demat and trading account with a DP as these accounts let you trade in stocks from the convenience of your home. An electronic account is also helpful as it lets you see all your positions at a single glance.

    Certain DPs provide real-time market data to registered users. In the stock market, information is money, and the latest research can mean the difference between a profitable or a loss-making trade. Therefore, choose your broker or DP thoughtfully before you start trading.
    Once you have zeroed in on a DP of your choice, keep the following documents handy.

  2. Required Documents-

    To trade stocks, you will need a demat account to store your positions electronically and a trading account to execute the trades. Most DPs offer a 2-in-1 demat and trading account. Here are the documents that are required to open such an account:

    a) Permanent Address Proof

    b) Identity Proof

    c) e-KYC - Certain DPs will let you link your AADHAR card to your trading account electronically, thereby removing the need for manually scanning your aadhar card

    d) Additional information like annual salary range may also be required.

    IIFL provides a smooth application process to open an online demat and trading account. The application process can be completed online - there is no need to manage heaps of paperwork of stand in long queues. IIFL also provides its registered users with cutting-edge data and analysis that helps them stay ahead of the game. IIFL’s interface is adaptive, and changes according to the financial goals and risk appetites of the users. The world of trading stocks is vast and complicated, and an IIFL trading account can be your trusted guide through it.

  3. Difference between trading and investing -

    Once all the documents are submitted, the DP will cross-check the submitted details and then provide you with the login details. With these details, you can log into your account and start trading. There are two distinct strategies that you can choose from:

    a) Trading:

    In this strategy, you will aim to turn short-term price fluctuations into profits. This strategy is mostly followed by intraday traders who clear all their positions by the end of day. The aim here is to take large, voluminous positions and look to sell upon the smallest or price fluctuations.

    b) Investing:

    Contrary to trading, investing means to hold your positions for long periods of time. The aim here is to discover undervalued companies, buy their stock, and maintain your position in them through the temporary market ups and downs.

  4. Conducting background research about a company -

    Before buying a company’s stock, it is important to conduct thorough research on the company’s background. A trader should consider the following factors:

    a) The company’s revenue model

    b) The company’s management stability

    c) The company’s competitors, etc.

  5. Build a diverse portfolio -

    While investing in the stock market, it is important to maintain a diverse portfolio. As a trader you must mix up different sectors in your portfolio so that your portfolio is not uniquely vulnerable to the ups and downs in one sector. Traders should also look to invest in large-cap companies for stable but small returns, and small-cap companies for large but more unreliable returns.

Conclusion

The stock market is a lucrative means of investing and can generate high returns, provided you follow the aforementioned principles carefully. Keeping these tips in mind, you can begin your foray into investing in the stock market.

Open Demat Account at IIFL