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Stock markets are all about share trading. It is when you buy shares at a lower cost and sell at a higher price to make profits.
Yet, investors often look at share trading with doubt because of its risky nature. Nonetheless, trading stocks is very simple.
Here are six things to know about share trading:
Let’s start with the basics. A stock market is just like the normal market you go to for buying vegetables. Except, this is for buying and selling shares and other securities. You have many players in the stock market – exchange, brokers, retail investors, day traders, institutional investors, foreign investors and so on.
A stock market cannot work with an exchange. It acts as a platform to bring together buyers and sellers. This is where companies come to get listed – when they issue shares in exchange for money. That sticker board you see with names of stocks and prices? Yes, that comes from the stock exchange. It is the common point between all the parties involved in stock trading.
Stocks or shares are securities that are available for trade. When you buy a share, you essentially own a part of the company. This portion of your ownership is reflected in the shares you hold. When a company lists on the exchange, it issues a certain amount of shares. This could be 50% of the company’s ownership, or 75% or even 100. As a shareholder, you are an investor in the company. You profit when the company makes money. The share’s price is a reflection of the company’s financial value. It rises when the company flourishes or if there is positive news, and falls in case of bad news that may affect the company’s health. As a share trader, you hope to make profits by buying shares at a lower value and selling at a higher price. This is the most basic rule of equity investing.
There are lakhs and crores of investors in the country. Not all of them can crowd at the exchange to buy and sell shares. Imagine the mess! This is where brokers play a role. They are registered with the exchange and act as a medium between the investor and the exchange. You need to be registered with a broker or a brokerage firm to trade in the stock markets.
This is why you need to have a trading account before playing in the stock markets. All your trade orders for buying and selling shares will be routed through this trading account. The broker or brokerage firm will then transfer your trade orders to the exchange for processing. You can place orders for buying or selling online or on the phone. It is important that you do your homework and form a strategy before trading.
A demat account is another prerequisite for share trading like the trading account. It is like a bank account for your share certificates. Just like how you can’t mail posts without an address, you can’t trade without a demat account. To read more, click here.