If you are like me, you stayed away from the stock market for most of your life, thinking, what if I lose all my money? Perhaps you thought it was like gambling. And you are right too. Some people have lost everything in the stock market, but it has also made some people very rich.
For example, as you know, Rakesh Jhunjhunwala started in the stock market with 5000 rupees and now has a portfolio of 20000 crores. Jatin Khemani bought his first stock at the age of 21. And now they have generated 900% returns in the last four years. Vijay Kedia has lost his father at the age of 18 and has started investing in the stock market to support his family. He paid Started with Rs.35000, but now they have crores of rupees.
I have seen that people who lose money in the stock market want to get rich on their first day. They are ignorant, who tried to get rich in a day without any preparation, and hence they lose all their money in the stock market in the beginning.
But if you want to make money in the stock market, then you need to have a strong arm of knowledge. You need a strong technical platform, who can tell you what’s happening in the market.
But most importantly, you need to be patient. So if you want to be rich in one day. So I cannot save you from losing money from the stock market, but if you have patience then I will tell you how to make money from the stock market.
So it does not matter whether you have any financial knowledge or if you have never invested in shares. By the end of this article, you will know what you need to do to make money in the stock market.
I will tell you, Why Invest In Stock Market? What is the stock market and how does it work? and How to pick the best stock broker?
Why invest in the Stock Market?
See, adult life is about two things. Responsibilities such as buying your home, studying abroad, traveling the world, starting a business or further and monthly expenses, medical bills, marriage, children, inflation, etc. and a nine to five job will barely fulfill your responsibilities. Forget about your dreams. And I am hoping that neither of you is trying to eat the savings of your parents and fulfill all your dreams.
The problem is that your landlord wants you to pay the rent. Your workmate wants you to pay. Also, the price of groceries is increasing. But your salary is not growing, no matter how hard you are working.
Now the only option you have is to invest smartly. If you invest in a bank fixed deposit (FD), you get returns ranging from 5% to 7% maximum. If you invest in a good company, then the stock market gives you a return of 15% to 30%. And this percentage is the difference between a comfortable life and a life where you struggle to make ends meet.
Now, the reason why the stock market gives such high returns is that it takes your money and from your money to creates more money.
Why everyone wants to invest in the stock market, because everyone wants financial freedom, fulfill their dreams, buy a house, and many more reasons.
What is the Stock Market and How does it work?
Let me quickly explain to you a few concepts that you need to know before you understand what the stock market concept –
1. Shares
A share is a unit that represents part of the ownership of a company. When you buy shares of companies like Reliance, Infosys, TCS, Asian Paints, and many more, you are becoming a part-owner of that company. It might be .00001% or less ownership.
You become the owner of a part of a company. There are two things Good thing and Bad thing.
[A] Good thing
Because tomorrow, if the company performs well and its stock prices increase, then the price of your stocks will also go up.
Let see an example – Let’s assume that the buy the one share of the Reliance right now 1500 rupees(it’s not, but for simplicity). Suppose you buy 10 shares. So you pay 15,000 rupees from your pocket. And in return, you get 10 shares of the Reliance.
Now suppose after a few months, because of some company News, company performance, or some news in the economy, because of these reasons the share price of Reliance goes up from 1500 rupees to 2200 rupees, which means that even though you invested 15000 rupees. Now your 10 shares are worth is 22000 rupees and your total profit 7000 rupees.
[B] Bad thing
Because tomorrow, if the company performs bad and its stock prices decrease, then the price of your stocks will also go down.
Let see an example – Let’s assume that the buy the one share of the Reliance right now 1500 rupees(it’s not, but for simplicity). Suppose you buy 10 shares. So you pay 15,000 rupees from your pocket. And in return, you get 10 shares of the Reliance.
Now suppose after a few months, because of some bad news, company performance, or some news in the economy, because of these reasons the share price of Reliance goes down from 1500 rupees to 1200 rupees, which means that even though you invested 15000 rupees. Now your 10 shares are worth is 12000 rupees and total loss 3000 rupees.
So when you’re buying the shares of a company, not only are you sharing the goodwill, but you’re also sharing risk with that company has proved if you want to make money in the stock market, you should not make any rash decisions.
You should learn –
- how to identify Good Companies
- Reduce your Risk
- And Invest for Long Term
2. NSE & BSE
- NSE – National Stock Exchange
- BSE – Bombay Stock Exchange
The stock market is like a grocery store, you can go there and buy monthly stuff. People will want to buy and sell shares of companies, go to the stock market, get it.
In India, the National Stock Exchange, which has around 1600 companies listed, and the Bombay Stock Exchange, which has about 5000 companies listed.
But remember, you cannot physically enter the stock market. You can only access it electronically through your computer, mobile phone. With the help of another registered intermediary called Stock Broker. We soon come to a stockbroker topic.
3. SEBI – (Securities and Exchange Board of India)
Where there will be wealth, there will be a thief. Therefore, the job of SEBI, Securities and Exchange Board of India, is to ensure that people like you and me are not cheated in the market.
They have rules and laws, a legal framework has been established so that if no one complies with these rules, then SEBI takes action.
4. Demat Account & Trading Account
To do transactions in the stock market. You need two types of accounts, trading accounts and Demat account.
Trading account is used to place buy and sell shares in the stock market. Whenever you have to buy some stocks, then that amount is debited from your trading account.
Similarly, when you have to sell shares, then that amount was also transferred back to your trading account. when you buy shares, we need a Demat account which acts as a digital wallet where your shares are stored. So trading accounts for money and Demat account is for shares.
5. StockBroker
As we discussed earlier, you want to do any transaction in the stock market, you need to do it through a stockbroker. Stockbrokers, stock market best friends because
- They help you open your trading account and your Demat account.
- They would provide you with the trading dominant either through a website or an app that would help you see what’s happening in the market.
- They’ll give you tips or tools to help you decide which shares to buy and when to sell and for doing all of this. They charge some fees called a brokerage.
now all the brokers operate under the SEBI guidelines. Does that mean that you can pick any stockbroker?
See, all colleges are affiliated by a university, but does that mean that all colleges are the same? You still have to pick the best college depending upon how are their placement. How are the teachers? What is the fee?
On the same lines, you also have to pick, which is the best stock broker, depending on how many people use it. How popular that stockbroker is, who provides the best tools, who does charge the least fees.
And if you don’t know anything about the stock market, then you may have heard that the stockbroker that provides the best service, it takes the least amount of brokerage and one such broker is Zerodha which has more than 60 Lakh active users.
Zerodha is one of the best and fastest growing discount broker in India. Zerodha fast, reliable and easy-to-use trading platform with paperless account opening. If you open an account with Zerodha, then you get some benefits from Zerodha like
- You can save up to 90% on brokerage
- Zerodha offers free Delivery for lifetime
- Zerodha charges very less brokerage of Rs.20 rupees per order
- Zerodha also has an extremely fast and paperless account opening process that you would get your account opened on the same day.
Zerodha is our Best Handpicked Stock Broker
6. Stock Market Index
There are around 5000 companies in the Bombay Stock Exchange and around 1600 companies on the National Stock Exchange.
So if I ask you, how is the stock market doing today? You’re not going to check the share price of each and every company.
You will pick a few major companies across key sectors and check their status. And if the majority of their status is going up, then you will say that the stock market is up. But if a majority of their stock prices are down, you will say that the stock market is also down.
Now, these few major companies that you use to determine the health of the stock market form the stock market index. In India, we have two major indexes, Sensex and Nifty.
Sensex has been major 30 companies from the Bombay Stock Exchange and Nifty have 50 major companies from the National Stock Exchange. Some of these companies include TCS Ltd, Tata Motors Ltd, Asian Paints Ltd, ITC Ltd, so on and so forth, The reason why we need an index is because it is a barometer for comparing any creating or investing activity.
For example, let’s assume that last year you have invested one Lakh rupees and generated a return of 20000 rupees, which means that now you have 1,20,000 rupees, which is 20 percent return, which is great.
But what if last year nifty move from 9000 points to 11700 points, generating a 30 percent return. Now you’re 20% does not look so good, because you have underperformed the index. And index acts as a barometer for every trader and investor because the intention is to outperform the index. Plus, a stock market index acts as a barometer for a country’s economy.
How Stock Market Works
Any company that wants to raise capital and decides to go public or offer a few of its shares to the stock exchange. Once the company gets listed in the stock exchange, people start buying and selling that company’s shares regularly.
But why keep buying and selling because with the intention of creating profit.
Let’s take the example of a company ABC – ABC is currently facing an internal leadership issue because most of our senior leaders are leaving the company because of this news. The stock prices of Company ABC have gone down from 1000 rupees to 500 rupees.
Assume that there are two traders, Rakesh and Neha. Rakesh believes that the stock prices of Company ABC will go further down. So he wants to sell his shares. But Neha on the other hand, believes that this is a momentary lapse. And once they find a good CEO, the stock price of ABC will go back up again.
So at Rs.500 and Rakesh becomes a seller and Neha becomes a buyer, they go to the respective stock brokers to the stock exchange. And stock exchange makes sure that the order is matched and the trade gets executed.
Now, the price of the shares goes up and down because of three things –
1. Different Point of Views
Rakesh and Neha as you just saw, had different opinions about Company ABC, which causes a demand and supply situation that moves the share prices.
2. News
If this positive news about the company, like if the company has made profits in the last quarter or if it had hired a good CEO, then the share prices can also go up.
3. Events
Events can be directly related to the company or the economy as a whole. For instance, the appointment of the Indian prime minister was perceived as positive news and therefore the entire stock market moved.
Now, what will happens to your shares after you buy them? Simple. This sit-in your Demat account.
But then one holding period is defined as the period during which you intend to hold the stock with you. It can be as short as few minutes to as long as a few years.
When the legendary investor Warren Buffett was asked what his favourite holding period was, He replied forever. Let me explain what that means. Once you enter the stock market, you will participate. Based on your experience, you are this taking capability and that will classify you as the trader or an investor.
First, A trader is someone who is constantly alert doing the market hours, always looks at the patterns and stays updated with the new, spotted opportunity, and buys the shares and sells them on the same day. After a few weeks.
For example, suppose the trader buys 100 shares of D-Mart at 2000 rupees at 09:30 AM, and at 03:00 PM he notices that the share price of D-Mart yet has increased from 2000 to 2050 rupees. So he immediately shares his shares, making a profit of 5000 rupees on that trade. Normally, traders are involved in four to five trades like these per day.
Second, are Investors. Warren Buffett is an investor. Their objective is to find good companies that right now have low share prices because of market fluctuations, thus making them a great buy.
An example of this is Infosys. In August 2017, due to some negative market sentiment, the stock price of Infosys dropped from 500 rupees to 430 rupees. It was either a great product that was available at a discount, so most of the investors jumped on the opportunity and bought Infosys shares with the intention of holding onto them because they believed that Infosys would do good anyway in the long term.
Eventually, it did pay off because the share price of Infosys did rose up to 845 rupees in September 2019. This Long-Term investment in good companies, irrespective of the market fluctuations, is what generates wealth.
Now that you have a brief idea of how the stock market work. Let me quickly explain to you one last and important thing, what is stock market Index?
As we discussed earlier, to open a Demat account, you need up stockbroker. There are two types of stockbrokers, full-service brokers and discount brokers.
Full-service Brokers –
As the name suggests, provide you with full service. They help you open your Demat account. They provide you with an on-call service that you can buy and sell shares over the phone. They provide you with daily tips about which shares to buy when to sell. And they have offices across the country.
Now, for this, they charge you a nominal fee of registration of 500 to 1000 rupees. Plus they charge you a transaction fee of 0.3% to 0.5%, which means if you’re doing a 5000 would be a transaction, you have to pay them .05% of that, which is 25 rupees. If you’re doing a 50000 rupees transaction, you have to pay them 250 rupees. This slowly starts adding up once you start trading more.
Full-Service brokers like – ICICI Direct, HDFC Securities, Kotak Securities and many more..
Discount Brokers –
They help you set up your demat account and trading account. They don’t have that many offices, but they provide you with three main advantages:-
- They provide you with an easy to use a trading platform so that you can buy and sell your shares easily online using your mobile phone or your laptop.
- Most of them provide you with investment tools and analytics, educational guides that help you learn more about stock market investments.
- You can open your demat and trading account with them for free.
They charge you a flat fee of around 15 rupees per transaction. So the brokerage they charge is very less.
Remember, it is for you to decide which broker you want to choose, whether you want to go to an office and get things done at a high, your brokerage, or you want the best technology online with the least brokerage.
I personally opted for a Zerodha, though, because I like things being done online. Right Now Zerodha is a fast growing stockbroker and it is a biggest discount broker in India.
People who lose money in the stock market. want to score four, then six in the first few hours. They played it as a 20-20 cricket match.
But that’s the thing. The stock market is a test match. And the test match, it’s all about staying in the game. The stock market will make you money if you first survive in it, long enough to learn it. So the bonus tip is – Go slow.
Open your demat account, Start investing small amounts and learn the tricks of the trade.
People have earned billions in the stock market because they were curious. They were disciplined. But most importantly, they were patient.
Click above on the Demat account link and Open Your Account then we will give you the best learning video links and a free premium telegram group access where you can get amazing updates about the stock market.
If you want to learn more about investing, then you can read – Best Youtube Channels to Learn Indian Stock Market
Don’t forget to share this article with your friends and family with, whom you want to start investing in the stock market.
The best stock market explaination for beginners. To the point and in a layman’s language. Than you so much.
Thanks,Sakshi Joshi
Great expansion helped me alot. As a newbie I leaned alot from your article.
Thanks alot.
Thanks, Shivam Mohite