Frequently Asked Questions on Share Market
The stock market, also known as the share market, is a common marketplace (usually known as the Stock Exchange) where the share units of publicly listed companies are issued and traded. It is here that investors can buy and sell shares of different companies, with the aim of booking better returns on investment than those offered on traditional investment instruments. The stock market is categorised into two types – the primary market where a formerly private company goes public for the first time with the launch of its Initial Public Offer (IPO) and the secondary market where shares of all listed companies are traded. Although it is known for its volatility, the stock market is also renowned for helping investors earn inflation-adjusted returns, provided they time their trades correctly and check the past performance and market cycles of securities before investing.
The share market is a place or platform where investors can buy, sell, or trade a wide range of market securities such as shares, bonds, derivative contracts like currencies and commodities, mutual funds, etc. The market is categorised into two types – the primary share market, where a company registers itself for the first time in order to raise funds from public investors by selling its shares through an Initial Public Offering (IPO) and then becomes a publicly-traded company. Then there is the secondary share market, where shares of already-listed companies are traded at their current price. Here, investors can buy and sell shares anytime and enter or exit the market as they please.
The basics of stock market investment you need to know to include the following
- You will need to open a DEMAT and Trading Account with a SEBI-recognised broker
- You must consider your risk profile, investment goals, and preferred investment tenures before you begin investing.
- You must familiarise yourself with the basic stock market jargon, the various exchanges, and trading platforms.
- You must review the costs associated with share market investments
- You must avoid putting all your eggs in one basket, and instead diversify your investments.
A combination of the words Sensitive and Index, the Sensex is the equity benchmark index of the Bombay Stock Exchange, comprising of the top 30 companies in terms of free-float market capitalisation from various sectors and trading on the BSE. In India, there are various Sensex indices, including the S&P Sensex Index, BSE Midcap and the BSE Bankex, among others.
Like the Sensex is to the BSE, the Nifty is the equity market index of the Indian National Stock Exchange (NSE). It combines the words National and Fifty and comprises the top 50 stocks in terms of free-float market capitalisation, from different sectors, and trading on the NSE. The prominent Nifty Indices in India include Nifty 50, Auto Nifty, Bank Nifty, Nifty IT, Nifty FMCG, etc.
The formula for investing in stocks for beginners is simple. Just follow these below-mentioned steps.
- Select a SEBI-approved and recognised stock brokerage platform to open your DEMAT and trading account – Mirae Asset, for instance.
- Provide the necessary documents (ID, address, and income proof) and complete the Know Your Customer (KYC) process.
- Login to your DEMAT account with the username and default password and change it to something strong. Memorise the password.
- Research about the stocks you wish to buy by considering your risk appetite, investment goals, and preferred investment duration. Also, assess the past performance of the stocks you choose across various market cycles to check how stably it has generated returns.
- Decide on the order quantity and optimise your investment portfolio with diversification to mitigate your investment risks.
A share market breakout represents a share price moving outside of a defined support or resistance level at an increased volume. Breakout traders typically enter long positions after the share price breaks above the resistance level and enter short positions after the stick breaks below the support level.
A breakdown in stock market is basically the opposite of a breakout. It is a downward move in the price of a security, usually via an unidentified level of support, which signifies a further decline in the security price. Stock market breakdowns commonly occur on heavy volumes, and the resultant move lower tends to be relatively quick and severe in magnitude. Traders can identify stock market breakdowns using technical tools, live chart patterns, moving averages and trend lines.
Some of the most commonly used and important chart types in stock market include:
- Line chart
- Bar chart
- Point and figure chart
- Head and shoulder chart
- Renko Chart
- Single and multiple candlestick chart
In the share market, a candlestick is a kind of price chart used in the technical analysis of market prices. This chart displays the highs and lows and opening and closing prices of a given security for a particular period. Candlesticks echo the impact of investor sentiments on the prices of securities. Technical analysts generally use them to determine when to enter or exit trades.
To minimise risk in the share market, you should start with thorough company research, diversify your portfolio, and avoid emotional decisions. Invest only what you can afford based on your current financial situation. Following daily share market movements and understanding market trends can also help manage risks and make more informed decisions.
Beginners in the share market often make mistakes like chasing quick profits, ignoring research, or blindly following tips available on social media. When starting out, you should avoid frequent buying and selling, and don’t invest without understanding the risks. Remember, patience and knowledge are key for success in share market trading.
The Indian share market today is influenced by global news, economic indicators, interest rates, company earnings, and government policies. Share market trading is also impacted by investor sentiment, political developments, and inflation data, making it important to stay updated with current events, both domestic and global.
You can stay updated with share market tips by following financial news, subscribing to trusted market newsletters, using stock trading apps, or visiting online platforms, like m.Stock, that provide expert guidance and updates on the share market today (such as top gainers, top losers, etc.). With so much “information” available online and social media, remember to always verify tips before acting on them.