Investing in stocks should only be done after acquiring sufficient knowledge about them. Being a newbie/amateur doesn’t necessarily have to mean being ignorant. Being an amateur with zero knowledge about the market might set you up for some grave losses. Nobody would like that. So, let us first understand what stock and stock market exactly are.
Alternatively called equity, a stock represents a fractional interest in the company. To the extent that one owns stock, one is entitled to a share of the corporation's assets and income. Shares are the units of stock.
Now, where can we buy and sell stocks? The answer is the stock market.
Stock markets are where individual and institutional investors meet at stock exchanges to purchase and sell shares in a public setting. Exchanges like these exist now in the form of e-commerce. As buyers and sellers submit orders, supply and demand in the market determine the price of an individual share of stock.
Now the question is, how to start investing in the stock market as a newbie?
The very first thing that is required is documents! There is a concise list of documents that a person needs to have before beginning to invest in the stock market. Which is as follows:
- Pan Card
- Aadhar card
- A cancelled check with the active account holder’s name on it
- A proof of residence based on a list of documents that have been accepted by the broker, depository participant or bank
- Documents entailing and proving that you earn an income
- Passport size photographs
After one has gathered all these essential documents, a Demat account needs to be established. Now, the Demat account is a totally new term in itself, so let us understand it better.
A Demat account is one that holds the account holder's shares. Shares held in a Demat account are stored in an electronic vault. With the help of a depository participant, it is opened online. In addition, several banks provide investors with the option of opening a Depository Account.
Now that we have a Demat account, another essential element is a trading account. It's impossible to have one without the other. A Demat account is one that has been "dematerialized," meaning that your shares are stored there.
Instead, you use a trading account to buy and sell shares on the stock market. A Demat account and a trading account are essential for beginners who want to invest in stocks.
It’s pretty obvious that since we’ll be buying and purchasing stocks, we’ll be needing money to do that. But cash doesn’t work in this case. What is required is a linked bank account. This guarantees that money flows in and out of your account seamlessly when you trade.
Most brokers will require this when you open a Demat and trading account with them. Now you can have a Demat and a trading account in one package. Trading straight from your bank account and storing your securities in the same location are also options offered by some brokers.
We had a concise overview of what is a stock, what is a stock market and what all is required in order to start investing in it. Now that we have an idea of what all is required, it is essential to understand where we’re investing.
We are investing in the share market. The first time a company would go into the market to raise funds, it’ll be greeted by the Primary share market.
The primary share market is where the securities are issued and traded. The first time new stocks and bonds are sold to the public occurs on this market. One example of a primary market is an initial public offering (IPO).
Investors can purchase securities from the bank that initially underwrote a particular stock through these deals. First-time public offering occurs when a private corporation issues stock to the public.
Whereas stock market is the term often used to refer to the secondary market for the purpose of purchasing securities. Investors trade among themselves on the secondary market, which is its defining feature. Investors trade previously issued securities on the secondary market without the involvement of the corporations that issued them.
Now, to summarise, there is a list of documents required in order to start investing in the market. Further moving onto a Demat and a trading account, followed by a linked bank account. These are some of the significant elements required in order to start investing and trading in the stock market.
Investing in the market is considered one of the most essential skills in the present times. So why not take it slow and steady and begin the investment journey with proper knowledge and precautions.