Investing in Equity markets is not a child’s play. There are a lot of things which you have to keep in mind when you start trading in equities. Here we familiarize you with what are equities, things you should keep in mind before investing in them and how you can trade in equities.
What is an Equity Market?
When a private company goes public, they register their shares on the stock exchange. These shares are called equities and the market they are traded in, is called the equity market. When you buy a share of the company you become a partial owner of that company.
In India, trading in equity markets is done on two stock exchanges. They are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). If you want to trade in equities, then you need to check if the company is listed on the stock exchange.
Things You Should Know Before Investing in Equity Markets
Investing in Equity Markets is not for amateurs. Even if you are a beginner, there are a few things which you should know before you start trading in equities.
1. Time is of the Essence
Stock markets are volatile. The key here is to do a trade by perfectly timing the market. If the market is a bull market you might think of buying as many shares a possible even though you feel there will be a fall. On the other hand, you might not want to buy the stocks when there is a big correction in the market and many stocks are available at cheap prices.
In such situations, you need to time your trades. If you are greedy when the market is bullish there are high chances you will incur losses if you do not sell the shares at the right time. Read and analyze how the market is moving and do your trade accordingly. Overcome greed and fear and trading will be an easy task.
2. Be As Patient As Possible
Trading in equities is not for those who need some instant money. This is not how the markets work. Investing in equities will definitely test your patience level. The best way to go forward is to choose top level stocks and stick with them even when there is a lull in the market. These same stocks might help you earn profits when the tides turn. You need to be patient and see how things go. Taking an impromptu decision can prove risky.
3. Learn & Grow
The stock market is ever changing. It is never constant. In the course of your trading journey there might be some lows and some highs. You need to learn from these experiences and grow into a better investor by the day. Avoid old mistakes and be wise in making decisions.
4. Be Disciplined
Stock market requires you to be very disciplined in your trading. Your stocks may see a temporary high or a temporary low. Do not give into such situations. Consider your investments as a long term investment. This will help you to avoid wasting time in tracking your stocks on a day to day basis.
5. Equity Market is Not a Money Making Machine
Equity Markets is not a money-making machine. Yes, there have been investors who have reaped huge benefits by investing but on the other hand, there are investors who have lost their entire wealth. Do not consider this a quick rich scheme. As mentioned above, you need patience, research, knowledge, strategies to invest smartly.
6. Invest Only If You Have Surplus Funds
This is one mistake which you can definitely avoid. Never invest the money which you need to survive. Invest only if you have surplus money so that your regular income does not get affected if you incur losses. Consider factors such as your age, risk-taking capacity, retirement plans etc and invest accordingly.
How to Trade in Equities Market
It is of paramount importance that before you start trading in the equity market you have a sound knowledge of how the market works. Here we list the steps to trade in the equities market.
- Hire a stockbroker or a broking firm.
- Open a demat and trading account.
- Monitor the movement of the market.
- Ask for paid subscription from the brokerage firm. These subscriptions will give you an insight on when you should buy or sell a stock based on market research and analysis.
- Choose a stock you want to invest in and buy it.
- Put a Stop-Loss on your position. If the stock reaches a limit which you have set for a sell, then the stop-loss can help you sell the share when you are not watching your position.
Follow the above basics and avoid rushing into your trading strategies. Time and patience should be your virtue if you are to trade in equities.