How does the stock market work for beginners

Share Market Investment Guide for BeginnersA share market is a place where shares are publicly issued and traded. A share serves as a tradeable document that validates your ownersh

How does the stock market work for beginners

Share Market Investment Guide for Beginners

A share market is a place where shares are publicly issued and traded. A share serves as a tradeable document that validates your ownership of a company. The share market is also where buyers and sellers exchange these documents. To facilitate the exchange publicly, a formal marketplace has been developed for investors to buy and sell their shares.

Share Market Investment for Beginners

To invest in stocks publicly listed on the market, you need to fulfil the following requirements:

1. Personal documents

  • PAN Card
  • Aadhaar Card
  • Name on a cancelled cheque from your active bank account
  • Proof of residence based on a list of documents that have been accepted by your stock broker, depository participant, or bank
  • Account statements
  • Passport-size photographs

2. Demat Account

A Demat account serves as an electronic house for your shares. Opening a Demat account is a hassle-free process conducted online or offline with the help of a depository participant. Many banks also offer Demat account services to their investors.

3. Trading Account

A Demat account and trading account go hand in hand. A trading account is used to buy and sell securities that you wish to trade on the stock market. Both Demat and trading account are mandatory for investing in the share market.

The Bombay Stock Exchange and the National Stock Exchange are primary exchanges where stocks are listed. However, some stocks may only be available on either one of these two exchanges. Hence, it is advisable to open your trading account with a depository participant who offers trading on both BSE and NSE.

4. Linked Bank Account

Linking a bank account to your trading account ensures a seamless flow of money in and out of your account as you trade. This is mandated by most brokers with whom you will choose to open a Demat and trading account.

Currently, you can find two-in-one accounts that serve as both a Demat account and a trading account. Some brokers also offer a three-in-one account where one can trade directly from their bank account and store their securities in the same location.

The Investment Process

The investment process differs when choosing to invest in the primary share market as compared to the secondary share market.

1.Investing In The Primary Share Market

A primary share market investment is made through an initial public offering (IPO). Once all applications for the IPO are received and counted by the company in consideration, the shares are allotted to investors based on demand and availability.

IPO application is made simple through your net banking account via Application Supported by Blocked Amount (ASBA). As an example of this process, if you have applied for shares that are worth 1 lakh, this amount will be blocked into your bank account instead of being sent directly to the company.

Once your shares are allotted, the exact amount is then debited with the balance being released. All IPO applications have to compulsorily follow this procedure. Once shares are allotted, they are listed on the stock exchange, and you can begin trading them within one week.

2.Investing In The Secondary Share Market

The secondary share market is where stock buying and selling action occurs between investors. Follow these steps to invest in the secondary share market:

  • Open a Demat and trading account using your linked banking account.
  • Log into that trading account.
  • Select the shares that you wish to buy or sell.
  • Ensure that you have the requisite amount of funds in your account to buy the shares.
  • Next, decide the price at which you want to buy or sell a particular share.
  • Wait for the buyer or seller to reciprocate that request.
  • Complete your stock market transaction by paying for and receiving the shares or transferring the shares and receiving the money.

Final Words

The process of investing in stocks for beginners is quite simple. Its crucial to be aware of your investment horizon and financial goals before you start investing in the stock market. Having advanced tools, expert recommendations and detailed real-time stock analysis data at your disposal as a beginner in the stock market is a huge factor towards risk minimisation. To avail of these benefits and more, open a Demat and trading account with IIFL today.Just a few steps to open your FREE Demat Account

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