The Indian stock market has always been a lucrative avenue for investors to generate capital growth. However, for those new to the world of trading, it can be overwhelming and confusing. In this article, we will explore the basics of trading and provide tips on how to start trading confidently.
What is Trading?
Trading refers to the buying and selling of financial assets such as stocks, bonds, currencies, and commodities. Trading helps investors earn returns by investing in these assets and selling them at a higher price than they bought them for in the stock market. To trade, an investor needs to have a demat account and a trading account with a broker.
How to Start Trading?
Firstly, an investor has to open a demat account. A demat account is an electronic account that holds securities such as shares, bonds, and mutual funds in digital format. It is used to hold shares in a dematerialized form, just like a bank account holds money in an electronic format. An investor also needs to open a trading account, which allows the investor to buy and sell securities in the stock market.
Once an investor has opened a demat and trading account, they need to research various companies and select ones that align with their investment goals. It is suggested to select companies that have a solid track record and consistent growth. An investor can find detailed information about companies on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) websites. These websites provide data on the company’s financial performance, ratios, and other important details.
Calculating the Initial Investment
Before investing, an investor needs to understand how much they need to invest. To calculate the initial investment amount, an investor needs to consider the brokerage fee, Securities Transaction Tax (STT), and Goods and Services Tax (GST) in the total cost of buying and selling stocks.
For example, if an investor wants to purchase 100 shares of a company at INR 50 per share:
Total cost of buying 100 shares = 100 * 50 = INR 5000
Brokerage fee = 0.5% of total cost of buying = 5000 * 0.5% = INR 25
STT = 0.1% of total cost of buying = 5000 * 0.1% = INR 5
GST = 18% of total brokerage fee = 25 * 18% = INR 4.5
Total cost of buying = INR 5000 + INR 25 + INR 5 + INR 4.5 = INR 5034.5
Similarly, to calculate the cost of selling 100 shares of the same company at INR 55 per share:
Total cost of selling 100 shares = 100 * 55 = INR 5500
Brokerage fee = 0.5% of total cost of selling = 5500 * 0.5% = INR 27.5
STT = 0.1% of the total cost of selling = 5500 * 0.1% = INR 5.5
GST = 18% of total brokerage fee = 27.5 * 18% = INR 4.95
Total cost of selling 100 shares = INR 5500 – INR 27.5 – INR 5.5 – INR 4.95 = INR 5462.05
Therefore, the total cost of buying and then selling 100 shares of a company at a price of INR 50 and INR 55 per share is INR 10,496.55, which is the initial investment required for a trade.
Tips for Trading
- Always keep learning: The stock market is always evolving, and it’s essential to keep up with the changes. Reading financial news, and research reports, and attending webinars will help investors stay informed and make informed decisions.
- Practice before investing: Before investing in actual stocks, an investor can practice trading in a virtual portfolio to gain confidence and understand the trading process.
- Diversify the portfolio: It is essential to diversify the portfolio by investing in different companies across various sectors. This reduces the risk of loss from a single company’s poor performance.
Conclusion
Before investing in the stock market, an investor needs to understand the basics, research companies, and consider the costs involved. With the right knowledge and guidance, investors can navigate the trading world with confidence.
In conclusion, trading in the stock market can be a great way to invest money and generate wealth. However, it is essential to understand the risks involved and do thorough research before investing. It is essential to use this article as a guide and take independent financial advice before making any investment decisions. The Indian stock market carries a potential risk of loss of capital, and the investor must assess the pros and cons before investing in any stock.
