An Insight into the Basics of Stock Trading for Beginners

An Insight into the Basics of Stock Trading for Beginners

Generally, young individuals with the enthusiasm and interest for stock trading lack the basic knowledge of the domain. Trading may not require a lot of money and time, but some basic knowledge of the stock trading world is important. You don’t need to boggle your mind with endless details available out there. We have come up with the basics for you. Get the gist here before you start trying your luck in the trade market.

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Types of trading styles-

1. Intraday Trading – This is the most popular trading style practiced among stock market retail traders. In case of Intraday Trading, the positions of traders are squared off by end of the market’s closing hours. With intraday trading the traders are saved from risk of overnight exposure by allowing them to book loses or profits quickly. It is a suitable option for those who can dedicate a considerable amount of their time for tracking the stock market movements multiple times in a day.

2. Swing Trading – In this type of trading the traders hold, the stock positions for short-term which, ranges anywhere between 1 day and a few weeks. Swing traders calculate overnight risk of their holdings and trade accordingly. Note that timeline is one of the important factors in Swing trading. If you prefer analyzing short-term price fluctuations, then this type of trading will prove out to be your best bet.

3. Positional Trading – In this stock market trading style the short-term fluctuations (minor though) are ignored by the traders. They predict a big price movement in each trade. Traders belonging to this category are willing to wait for months in order. Usually, they deal in the underlying stock and there are probabilities of gaining over 20% in trade.

4. Options strategies – If you like outcomes to be more defined and measured, then trading with options strategies is a right option for the ones with mathematical and objective thought process. Mostly the traders who prefer specifically measured and more defined options prefer this type of trading. But formulating options strategies is a difficult task. You need to invest a considerable amount of time in order to gain expertise at formulating strategies and their seamless implementation.

Recommended Stock Trading Course for Beginners

Process of opening a Trading Account

1. The first step is to find a reliable stockbroker. Make sure the firm or broker you choose is efficient enough in taking orders well in time. Time is one of the most crucial factors in stock trading as price fluctuations happen in every few minutes.

2.  Brokerage rate is next important thing to consider. It is a certain amount of fee charged by the brokers to process the orders. Make a comparison between the rates charged by different brokers during the selection process. Consider the discount offers as well.

3. Once you have chosen your potential broker/ brokerage firm connect with them in order to know about procedure of opening the trading account.

4. The next step would involve filling up the Know Your Client (KYC) form and account opening form. You’ll need to submit all the required documents along with your address and identity proof.

5. The brokerage firm/broker verifies will verify your application either over a call or through in-person check.

6.  Once the request is processed, your broker will hand the trading accounts details to you. You can now get into stock trading.

Process of opening a Demat Account

Step 1: Connect with a depository participant (DP) for getting a demat account opened in your name. DP is a depository agent who will help, guide you throughout the account opening procedure. Check out the depositaries websites [NSDL (National Securities Depository Ltd) and CDSL (Central Depository Services (India) Ltd] to access the list of available DP’s.

Step 2: Your DP will give you an account opening form. Hand it over the concerned person after filling in the details. Plus, you must submit photocopies of the necessary documents for proof of address and identity.

Step 3: The next step involves signing an agreement with Depository agency in the prescribed format, which includes the details of DP’s and investor’s duties and rights. After the agreement is signed, you’ll receive the agreement’s copy.

Step 4: Your Depository participant will open a demat account in your name and give you the details. The beneficial owner identification number (BO ID). All the credits of investments and purchases made by the beneficial owner (account holder) go to this account. The account is debited in case of securities are sold off.

Opening Charges Demat Account

You don’t have to pay anything for opening your demat account. Note that all the charges are mostly payable on a monthly basis. Your account might freeze in case of delay in clearing the monthly charges. You must read all the agreement documents related to opening of trading and demat account carefully before singing them.

Pros

• There are high returns and low costs (commissions and brokerage) in Stock trading.
• There are varied selections of Trading Styles meeting diverse preferences and choices of the traders.
• Stock market offers high liquidity to the traders in comparison to other investment options.
• The Forex market operates globally. It doesn’t feature any central regulator or exchange. Rarely a central bank of any country interferes in stock market regulations. It is only under extreme conditions that a financial institution’s interference is needed.
• There are a number of high profits making opportunities in stock trading.
• You need not to encounter a hefty process in order to get started with Forex Trading. Moreover, there is low initial capital requirement for trading in stock market. 

• There are a number of technical indicators and fundamental analysis for guidance of the traders.

Cons

• There is less transparency in the forex market due to the dominance of the brokers. Plus, traders have less to no control on their orders. As a result, they may fail to get stock at the best price.
• Stock traders can get exposure to profit/loss multiple times while trading in the market.
• A trader needs to self-direct himself when trading in stock market. Though you may seek help of trade advisors or portfolio managers, but that comes at a price.  

The Bottom Line

Stock trading is often perceived as an easy option to making a huge amount of money. Actually, it is not that easy to earn profits in Forex market unless. Extensive knowledge of capital management techniques, perseverance, risk taking ability and continuous learning are needed to become a successful trader. 

Also read 6 Common Mistakes to Avoid in Intraday Trading

Disclaimer- All stock comments and recommendations mentioned in this post are writer’s opinion. Trader’s discretion is advised in case of stock selection and consideration of any recommendation/advice laid here.