Stock investing can be a scary ordeal if you are unfamiliar with it. There's a lot of terminology and knowledge to learn before you feel comfortable enough to start buying stocks. To become a successful stock investor, you need to learn the language of the stock market.
Here, we will try to answer some essential queries regarding stock market investment.
Q1. Can stock trading be a career?
Stock trading as a career may attract investors. Stocks and trading aren't for everyone, so it's crucial to know what you're getting into before starting this career.
There are several things you should know about stock trading. First, this isn't a good fit if you want a 9-to-5 career. Some stock traders are hired this way, although most stock traders and financial analysts work long hours and weekends.
Most full-time traders work from home so that they can determine their schedules. Trading stocks may suit you if you want independence. However, many people are unaware that working for yourself includes setting up your place and paying your taxes.
Q2. Do stock investments compound?
Stock investments offer compound interest if you reinvest dividends from stocks. You can purchase additional shares with dividends to benefit from compounding.
Q3. What are some of the important stock investment strategies?
There are a variety of strategies that an investor can use to invest in the stock markets. One strategy offered by different Indian brokerage houses is rupee cost averaging.
This strategy involves buying stocks with a specific amount regularly. This helps you get more parts of a stock when the stock price is low and vice versa. In this scenario, you might get fractions of the stock depending on your regular investment amount and stock price.
Another strategy that is commonly used is called trading on margin. When you use margin, you borrow money from your brokerage to buy more stock than the cash available.
Another strategy that investors use is called value investing, which involves finding good companies with low prices, buying these stocks when they are low, and selling them when they are high. Still, the drawback to this strategy is that it can take years before these stocks go up in price.
Q4. Is stock investing gambling?
Investing isn't gambling. First, gambling involves random chance—you're betting on your roll or spin of the dice to defeat everyone else's. You can't control the roll or spin in gambling, just like you can't predict the market on any given day.
You have some control over your investments while buying and selling stocks. In a wager, you can only enhance your odds. If you pay attention to which firms are earning money and invest in them while they're doing well, you'll earn more money from your investments than someone who just threw money at any old ticker symbol without analysing it before.
Q5. How can I invest in stocks without taking too much risk?
If you want to invest in the stock market without taking too much risk, then choosing investments with proven track records of outperformance over time is best. These include stocks from well-established companies with strong balance sheets and high returns on equity (ROE).
Q6. How can I do stock trading without leverage?
It is possible to trade stocks without leverage. It is a good idea if you're new to trading or if your account balance is very small.
Trade stocks without leverage by using limit orders instead of market orders. Limit orders allow investors to specify the price at which they want to buy or sell a stock and how many shares they want.
Q7. Can I do stock trading without a demat account?
No, you will need a demat Account to trade on the stock market. This is because your demat Account reflects your stocks in a dematerialised manner.
Q8. What are the differences between investing in stocks and trading?
The first thing to understand is that these two terms are not interchangeable. Investing refers to buying an asset with the expectation of holding it for an extended period (sometimes years). Trading refers to buying an asset to sell at a higher price within a shorter time frame (usually days or weeks).
Q9. How to invest in stocks during a recession?
A recession is a period of slowdown or decline in economic activity. It may last for a few months or years.
Stocks tend to go up more than other investments like bonds or traditional savings options. This means that your money will grow faster if you put it into stocks after careful consideration.
If you want to invest in stocks during a recession, then here are some tips that will help you:
- Choose companies that have more sales and less debt.
- Always keep an eye on the news.
- Don't over-rely on one company as it may fail at any time.
Q10. What is fundamental analysis?
Fundamental analysis studies a business's financial statements, trends, and economic factors to forecast future performance. The premise is that historical performance is a good indicator of future results.
Also called "Value Investing", it attempts to evaluate a company's intrinsic value by closely examining its sales, profits, assets and liabilities.
Q11. Can a loss in stock investment reduce my taxable income?
- The Income Tax doesn't let you use a loss from the "Capital Gains" head to reduce income from any other heads. Instead, you can only use this loss to reduce income from the "Capital Gains" head.
- Only Long Term Capital Gains (LTCG) can be used to offset Long Term Capital Losses.
- Short-term capital losses can be used to reduce both long-term and short-term capital gains.
Q12. What are some of the risks associated with investing in the stock market?
- One of the biggest dangers is that stocks are not guaranteed—they can go down and up.
- Never invest more money than you can afford to lose. It's impossible to predict what will happen to the prices of stocks accurately.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.