Stock market basics for beginners: A guide to investing and trading

The stock market is not just a playground for Wall Street professionals or finance geeks. It is an open gateway to wealth for anyone who can master it. Initially, it may sound like a riddle as prices move up and down, and the charts appear complicated. But once you understand the basics, it stops being about luck and more about smart decisions.

Imagine this: You hear someone say, "I got 2x return on my investment in the share market," while enjoying a cup of tea. Interested, you ask, “How?” But the response you get is not even satisfactory, given the use of complex figures and stock market-related theories. Behind it all, you can't help but wonder: what if you were able to accomplish the same?

This guide is your entry to unlocking the mysteries of the stock market. Whether you are saving up for that dream house, developing that business idea, or envisioning a comfortable retirement, understanding this ever-evolving domain can help make dreams a reality. 

What is a stock market?

The stock market is a platform where shares of publicly listed companies are bought and sold. Think of it as a giant marketplace. Instead of fruits and vegetables, you’re trading ownership stakes in companies like Tata, Infosys, or Reliance.

When you acquire a share, you own a part of the company. For instance, if a company has 1,000 shares, purchasing one share means you own 0.1% of that business. The value of your investment increases when the company performs well and its share price rises. On the other hand, poor performance can result in a loss.

Shares were offered in physical certificates around 25 years ago. Today, they are all electronic, stored in a Demat (or dematerialised) account. It is a digital account used for buying, selling, and holding securities such as shares, bonds, etc., traded in the stock market. Opening a Demat account with platforms like Upstox, for example, is simple and free.

How the stock market functions

Picture this, an online marketplace exists where people sell second-hand gadgets. A person selling phones lists one phone at ₹20,000. After some negotiation, he accepts ₹18,000. This transaction becomes the market price of that specific phone.

The same occurs with stock prices in the stock market because of the actions taken by both buyers and sellers. These events occur on both exchanges, as can be seen below, for the Bombay Stock Exchange (BSE) in India and the National Stock Exchange (NSE).

What factors affect share prices?

Share prices aren’t random. They’re influenced by supply, demand, and a company’s perceived value. Let’s simplify this with an example.

Suppose you bake 100 cookies and price each at ₹10. If customers love them and ask for more, you may bump up the price to ₹15 or ₹20 a cookie. If no one buys them, you drop the price to ₹8 to attract buyers.

In the stock market, when a company reports record profits or introduces a new groundbreaking product, its "cookies" sell at a high price; in other words, more people want to buy them. In contrast, any type of mishappening in the company or an earning miss can trigger a sell-off in its share price.

Two essential analysis techniques

Investing in stocks is not a matter of mere chance. It demands well-informed choices. In selecting the right stocks, investors depend on two distinct approaches:

1. Fundamental analysis:

   It delves into a company’s overall well-being and its growth potential. By examining financial reports, revenue trends, and debt levels, one can ascertain whether the company is a worthy candidate for long-term investment.

2. Technical analysis:

   This is based on patterns and trends in prices. Using charts, traders analyse data from the past. It helps them evaluate and forecast the short-term price movements of shares in the future. This methodology is very popular among speculators who seek quick income but requires skill and expertise to master.

How to start investing?

It's a bit like a gym – very, very intimidating at first but doable once you take the first step. Start with opening a Demat account. Kickstart by consuming all the learnings from Upstox's online resources. Next, start investing in companies you are familiar with and understand. Remember that the market always rewards patience and discipline. At this stage, never jump on those "hot tips" or high-risk trades. The market is not just for experts or millionaires but for everyone willing to learn using a structured approach. Take the initial step, maintain consistency, and unfold your financial journey.