When beginners first step into the stock market, the fundamentals have to be learnt. Without a strong base, it can be challenging to be profitable in the market. The stock market provides plenty of stock options for traders to choose from. Investors can choose from a plethora of companies to trade. However, before you start with your trading journey, it is important for you to understand the basics of the stock market so that you make profits and avoid losses. Let us have a look at the stock market and some tips to trade in the stock market.
What is The Stock Market?
The stock market is a marketplace that has several financial instruments that can be traded. These financial instruments vary from stocks and bonds to commodities and others. There are 2 main stock exchanges in India – Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Over 90% of cash trades are carried out on NSE. There are also other commodities like Indian Energy Exchange (IEX), Multi Commodity Exchange (MCX), and others. The financial instruments across all these exchanges are regulated by Securities and Exchange Board of India (SEBI). SEBI ensures to regulate all activities such as day-to-day trades, instruments that are traded, and the exchanges that allow financial instruments to be traded.
Also Read: How to Start Stock Trading in India?
Role of Broker in The Stock Market
To trade stocks, you will have to register with a stockbroker. There are plenty of stockbrokers available in the market. They facilitate trades and provide you with a platform to trade on. A stockbroker assists you in the entire process of buying and selling of shares. Different stockbrokers have different trading platforms. Make sure to choose the one that you find easy and convenient to use.
Costs of Trading in The Stock Market
While trading in the stock market, there are 3 main charges that will be incurred.
1. Transaction Charges
For every trade that you make, a certain transaction charge or brokerage fee will be charged. These brokerage charges vary depending on the stockbroker. Of late, there have been many discount brokers entering the market, thereby decreasing the brokerage charges on the whole.
2. Demat Charges
Demat accounts are not operated by stockbrokers. They are operated by central securities depositories such as CDSL or NSDL. You will have to pay annual charges that typically vary between ₹100 and ₹750 as Demat charges.
As you trade and make profits, you will have to pay a certain percentage of tax on the capital gains that you make. For long-term capital gains, you will have to pay taxes of 10%, whereas you have to pay a tax of 15% for short-term capital gains.
5 Tips to Trade in The Stock Market in India
With stock market trading India, it is important to start by strengthening your fundamentals. Here are some tips you can use while trading so that you can improve your profits and avoid losses.
1. Decide Your Risk Appetite
One of the most important aspects of trading is to identify your risk capacity. With the amount of capital that you have, you need to decide the amount of capital that you can risk losing. Depending on your risk threshold, you can decide the other factors of your trade such as your stop loss and exit points.
2. Track The Trend
The best way to gauge how a stock could potentially move is to understand its trend from its historical data. Analyse the chart to identify certain patterns so that you can better ideate your next strategy. Make sure that you understand the regions of support and resistance. This can help you plan your entry and exit in an effective manner.
3. Use Stop Loss
While entering a trade at the right time is important, it is more important to exit the trade at the right time. Depending on your risk capacity, make sure that you set a suitable stop loss. So, in case you miss out on the exit point, especially in highly volatile markets, the stop loss can help you cut losses.
4. Diversify Your Portfolio
A key advantage of diversifying your portfolio is that it can help you avoid losses. There are several ways in which you can diversify your portfolio. You can start by trading stocks that are in different industries. This can help you minimise the associated risk with stock trading. In case a certain industry is volatile or is underperforming, you can trade stocks in other industries to make profits.
5. Maintain a Trading Journal
While you trade, make sure that you note down certain elements of your trade such as your entry point, exit point, stop loss, the reason for entry and exit, profits, and losses incurred. Maintaining a journal with these data points can help you assess your trade and thereby can be beneficial to improve your performance in the future.
In a Nutshell
Now that you have enough of an idea about trading stocks, make sure that you employ these tips during your trade. If you are looking to start your trading journey, you will first have to open a trading and a Demat account with a stockbroker. If you do not have an existing stockbroker, you can open a Demat account with Dhanush by Ashika Group for stock market trading India. This platform is seamless and easy to use and can help you trade stock easily.