Stock Trading for Beginners: Everything you Need to Know
Stock trading is not a new concept. But with increased connectivity due to the internet and easy access to vast information available 24X7, more and more people are looking at it as a suitable means to earn extra income. Also, many individuals are opting for it as a full-time career option nowadays. Though it offers enormous profits, trading with incomplete knowledge can lead to losses. So, before you start to trade, it is necessary to equip yourself with the skills to trade strategically to avoid the effect of the share market’s volatility to a great extent.
What is Stock Trading?
Stock trading refers to buying and selling of shares of a particular company. Owing a company stock means owning a part of a company, and it focuses on short-term gains and not long-term. Investing can prove to be risky without proper knowledge.
Primary Market: Companies issue new securities and make them public. The transaction takes place between issuers and buyers.
Secondary Market: In this, you can buy and sell stocks issued in the primary market. The transaction occurs between seller and buyer, and the stock exchange or broker acts as a mediator here.
What is a Stock?
Stock is also called share or equity. It is a monetary unit representing your ownership of a company with a proportionate claim on its assets and earnings. For example, if you own 10 00,000 shares of a company with 10 million outstanding shares, you have a 10% ownership stake.
Types of Stock Trading
Stock trading offers several types of trading that you can select from. But if you are a beginner, it is recommended to educate yourself about its different types and decide the trading strategy according to your financial goals.
Here is a list of some of the most popular stock trading types:
In intraday or day trading, you buy or sell stocks the same day before the closing hours of the stock market. You can hold your stocks on that day for a few seconds, hours or do multiple buying and selling activities. This type of trading is not meant for beginners. It requires quick decision-making by analyzing the stock market movements.
Out of all the trading types, it is the riskiest. You must have in-depth technical analysis knowledge and awareness of risk management techniques. It is pretty challenging due to its volatile nature and hence not recommended for absolute beginners.
In swing trading, you can hold stocks for more than one day to predict price fluctuations overnight. It is less risky than day trading, and the only difference between the two is the duration for which you can hold stocks.
You must have enough knowledge and experience to analyze uptrend or downtrend to make profits.
In positional trading, you can hold stocks for a more extended time ranging from a few months to years. The analysis is based on technical and fundamental aspects of trading. Keeping in mind long-term gains, the decision is taken, and short-term price fluctuation is not considered.
This type of trading requires the most negligible monitoring. Since the time is longer, it is not risky and offers decent returns. You make decisions to buy stocks after analyzing the company’s future prospects.
Technical analysis is done to predict price variations in the stock market. Stock market prices are based on demand and supply forces. To become a technical trader, you need to be a good researcher and have in-depth knowledge of stocks.
Technical and day trading are similar. To excel as a technical trader, you must have chart reading and technical analysis expertise. The time frame varies from hours to months, and the risk involved is relatively high.
Fundamental trading is based on buy and hold strategy. It focuses on company-specific events. The stock market price prediction is made according to the company performance, industry it caters to, and economic statistics. After analyzing the financial statements, growth, management quality, and earnings, share value is determined.
Fundamental trading involves investing in a stock. You buy shares at their present value with the belief that they will increase over time. There is no time limit in this type of trade, and you can remain invested for as long as you wish.
How to Trade Stocks as a Beginner?
As a beginner trader, you need to be aware of several initial steps that can help you trade like a pro within no time.
Open a Demat & Trading Account: You need to open a Demat account to hold investments and a trading account to buy or sell stocks. You can open this account online easily. But opening an account does not mean you have to invest, and you can start investing once you are confident with trading.
Linked Bank Account: You need to link your bank and trading account to allow seamless money transactions while trading. Nowadays, there is an option to trade directly from your bank account, which serves the purpose of three in one account.
Set a Trading Budget: Do not invest all the money at once. Invest only that much amount you are ready to lose. Keep aside funds for an emergency.
Practice with Virtual Trading Account: As a beginner, it is not recommended to start trading immediately. Practicing with a virtual trading account gives you enough experience to understand how the market works and the confidence to trade.
Take Expert’s Help: If you are starting, you can take the help of an experienced trader with a high success rate. You can also copy strategies they implement.
Enroll in a Course: Enrolling in a short-term trading course will benefit you a lot. It will equip you with the necessary knowledge and terminology about this field. You will learn how to trade to maximize your profits.
Impact of Online Trading
The Internet has a significant impact on everyone’s life. It has changed the way you buy and sell, indulge in entertainment, communicate, etc. Stock market trading is not left behind, and it has been revolutionized with the facility to trade online. Even a non-specialist can now access the trading platforms and dive into the lucrative trading field.
Here are a few key benefits to trading online:
Easy Access to Information
It has given more power to individuals as financial information is easily accessible. Before the internet, as an investor, you have limited resources to gain knowledge. The only option was to read books or contact the company directly, which was time-consuming. Nowadays, hundreds of websites provide free information or charge a nominal fee to provide updated information.
The internet has helped lower the fees investors used to pay to the brokers or brokerage firms. Now you have to pay much lower commission rates to trade securities. Several online trading platforms allow you to trade independently without the need for any middleman.
The entire information is transparent. You can analyze the performance of each stock and have the complete liberty to buy or sell stocks of your choice. Earlier, you depend on agents who do trading on your behalf with a mindset to maximize their profits.
The stock market is highly volatile. As a novice trader, you can suffer huge losses by selecting the wrong stock to trade. You can start by trading less volatile stocks. It is also recommended to gain basic knowledge of this field before you begin to trade.
Here I have covered different types of stock trading, what steps to take to start trading, and what benefits online platforms help you trade in a better way.