The stock market is a dynamic place. With everyday changes, the market is sometimes booming and sometimes, not so much. It is a volatile place to be in and definitely requires the proper amount of research and understanding in order to enter it.
There are primarily two types of trading, intraday trading, and swing trading. Intraday trading is one that takes place in one single day. An intraday trader makes multiple trades during the day and closes the trade as the market closes.
However, swing trading is the type of trading that occurs over a few days or weeks. Both these types of trading need some initial mastery to make wise decisions in the game of stock exchange!
Before moving further, it is crucial to realize the fact that the stock market is a risky playground. There are profits, for sure. But there are also losses.
And one shall always be prepared to bear the losses if one is determined to gain the profits.
There is no ‘perfect’ way to acquire stock trading expertise but requires the specific skill set and risk tolerance to continue being in it in the long run.
We will be covering two essential aspects of buying your first stock in India, the first one being the technological aspect and the other one being the intellect aspect.
The technical guide will cover the necessary steps required to be able actually to trade in the market. Along with that, the intellect aspect will cover the critical points to keep in mind while investing in your first-ever stock
Here is how you can buy your first stock in India: The technical guide –
1. Ensure you have a PAN Card
Having a Permanent Account Number is mandatory in India for all sorts of financial transactions. If you do not have one, make sure to get one before you start your trading journey.
You will need this PAN to open a bank account, invest in mutual funds, fund your fixed deposits, and finance the stocks. You also need this number to file your ITR.
Hence, to invest in shares in India, this is the first and one of the most critical steps that you need to complete.
2. Find the right broker:
To trade in the stock market, you need to have a SEBI registered broker.
This broker will act as an intermediary between the stock exchange and you, in order to buy and sell shares. Get in touch with a broker with the proper credentials to move further.
There are multiple websites and apps that prove brokerage services. We recommend using Groww or Zerodha for beginners. Using both of these apps you won’t anything else to begin investing in the stock market.
3. Open your DEMAT and trading account:
A Demat account is required for you to hold your shares in electronic form. Without this, there is no other way for you to buy and sell your stocks.
Whereas, for the transactions of buying and selling your shares, you need a linked trading account.
It only takes about 48 to 72 hours to open your Demat account and begin with trading in stocks.
If you’re looking for a free Dema account, consider using the Groww app.
4. Get in touch with a depository participant (DP):
A depository participant is also a mediator, but between the depositories and the investor.
There are two main depositories in India; the National Securities Depositories Ltd. (NDSL) and the Central Depository Services Ltd. (CDSL).
The Demat account that you open is through these depositories themselves, which help you invest in the stocks. The DPs will help you hold the shares you buy and release the ones you sell.
5. UIN to invest big:
If you are willing to have trade transactions, for Rs. 1 Lakh or more in a single go, you need to have a Unique Identification Number.
For regular investors not planning to invest a too large amount, this step is avoidable.
You can get the UIN number using FORM GST REG- 13.
You are ready to invest in the stock market once you are done with all the above steps.
To start investing, you need to tell your broker which shares you want to buy, their quantity, and at what price.
Once you place the order and the shares reach that price, your transaction will take place.
For example, if you wish to buy 10 shares of ABC Ltd. at Rs. 276, you will inform your broker about the same. As soon as the share touches this price, the broker will buy 10 ABC Ltd.
Shares on your behalf and add it to your account. Every broker charges some bit of a commission for each transaction.
Once you have understood the technical steps you need to cover to buy your first stock in India, comes the intellect part.
To decide which stock you want to invest in, there are significant concerns that every individual must critically analyze and study
These are the steps in the intellect aspect of buying your first stock in India
1. Follow the news and do your research:
Economic data is crucial as it vastly affects the market. Always make sure that you are generously following the news and keeping track of what is happening in the economy.
Announcements from big companies also affect the stock market, so it is imperative to keep track of each critical financial and economic news that is currently going on.
Research as much as you can about the companies you want to invest in. Make a list of the few companies you are really into, and start analyzing its trends.
Past data, figures, news, and the company’s current standing are essential areas to look into.
The past year’s revenues of the company are also an important point to keep in mind.
Always make it a habit to research about the company before investing in it, and only invest in the companies you are sure about, at least initially.
2. Choose the reputed, big companies to start with:
It is wise for a beginner investor to try and only invest in large caps and big names.
It is a safe play to invest in companies that already have a respected and well-known standing in the market.
Such stocks don’t necessarily perform well all the time, but their chances of regaining the price that will profit you are higher than the other stocks.
3. Learn how to study charts and trends:
This skill will take a lot of time to develop, but it is always the right thing to start early.
There are several charts available that tell everything about a company’s position, and if you learn to read even some percentage of it, it will be a great start!
The primary thing you need to focus on is if the company’s chart begins from the lower end and ends at the upper end.
That means the stock prices are rising, and it is a good thing to invest in that particular stock. Of course, there are more technical charts that tell so much more about a company, but this one point is the easiest one to learn and apply.
4. Understand ratios:
Several ratios help you choose the right stock.
The price to earnings ratio, debt to equity ratio, earning per share, and return to equity ratios are among the few ratios that will help you choose the right stock. The higher the earning is to the price, the better the stock is.
The lower the debt is to the equity, the better the stock is.
The higher and constantly increasing earnings per share are, the better it is. This is how you understand and analyze the ratios to choose your first stock to invest in.
5. Utilise the existence of Bloomberg:
Bloomberg is magical software, for real! It is an application that holds data about anything and everything all around the world.
It holds information about the companies, their financial standing, the recent announcements, and whatnot. For beginners, it is the easiest way to have the entire collection of material at once place.
Utilize Bloomberg and study everything you can through the charts and figures to understand the best stock you should start your investment journey.
Always remember that investing in the stock market is a continuous learning process. Nobody can ace the trading system in a few days, or for that matter, even in a handful of years.
The dynamism is such that no matter how much you learn, it is not enough.
This is why you need to always be on your toes and keep studying the market as much as you can. It is a challenging game, but tough games are still the most fun!
If you can critically examine the technical and intellectual aspects mentioned above, you will most likely make the right choice while buying your first stock. However, even if you don’t, do not worry.
Your first decision might be wrong, even your second, but the third shot will definitely turn out to be a game-changer. Constant learning, studying, exploring, and scrutinizing are what will help you in the long run.