If you are planning to trade stocks and want to do it successfully, there are a few stock market basics that every trader should know about. Read this post to know five such stock trading basics.
While many people want to trade stocks, only a few of them are able to gather the courage to actually open a Demat account and start trading. For the rest, the thought of losing and lack of knowledge often prove adequate enough to postpone their plans. While losing is and always will be a part of the stock market game, you definitely can do a lot about your lack of knowledge.
To start with, you should at least know a few stock market basics that can help you lay the right foundation of your stock market journey. To help you begin, we have listed 5 of the most important share trading basics below-
- Understand the Difference Between Trading and Investing
Many people use the term “trading” and “investing” interchangeably when talking about the stock market. However, there is a world of difference between the two. Trading is when you take a short-term position of maybe a few minutes, hours, or a few days in a particular stock expecting it to rise above your buying rate.
Investing is when you take a long-term position of several months or even years expecting the price of the stock to rise considerably within the period. To begin with the stock market, you first need to understand the difference between the two and pick the side you want to be on.
- Know What is Short-Selling
If the stock trading is what you have selected, one of the most important things you should know about is short-selling. In a normal trade, you first buy a stock and then sell it, preferably at a higher price. With short-selling, you first sell the stock and then buy the same, preferably at a lower price.
You might have heard people talking about how you can make money even when the stock prices are falling. It is through short-selling that this can be done.
- How Does the Derivatives Market Work?
While it is not recommended that you should start trading in the derivatives market when you are a beginner, you should at least try to get some basic idea of how this market works. As the name suggests, the derivative market derives its value from the underlying assets.
The BSE, as well as the NSE, have derivatives offerings where you are required to purchase futures or options contracts that come with a fixed expiry.
- Master of Technical Analysis
For stock trading, you also need to learn technical analysis. It is the process of forecasting future price movements of a stock based on the past price movements. Start with understanding stock charts, chart patterns, volume monitoring, and technical indicators.
While technical analysis can initially look intimidating, use reliable resources and be patient if you are serious about your stock trading success.
- Select the Right Stockbroker
Last but not least is selecting a reputed stockbroker for your stock trading. There are now several stockbrokers in India, but you should select one that has an excellent reputation among the traders and offers a wide range of services.
The stockbroker should have competitive brokerage charges, and the trading platform should be easy to understand and use.
Being a Savvy Stock Trader
No matter if you want to trade in BSE Sensex or NSE Nifty stocks, you’ll have to master the basics listed in this post if you wish to improve your trading accuracy.
Understand the working of the stock market and create your own trading strategies if you are looking to make stock trading an additional source of income.