Basic FAQs for the beginners in stock markets
I always get several questions from my friends and newcomers, who are becoming interested in stock market. In this tutorial I am going to discuss about those questions.
How much money should I start investing with?
This is the first question I always get, no matter who is asking. In my opinion stock market is always about money, the more you invest the more you get in return. However this is recommend for the active and experienced investors, who have good knowledge of shares and stock markets. For the beginners I would say, ask yourself how much you afford to invest. If the amount is higher then it is good. But when you are about to start investing, I would always recommend to start with small denomination. Because at the beginning it would be your learning curve and there would be higher chances for you to loss. So, I never recommend to start investing with all the money you have or can. I would always suggest you to start investing in maximum 10 to 20 shares.
Should I start investing in stock market or Can I make profit out of the stock market?
No, everyone can not make profit out of the stock market or shares. Everyone does not have the capabilities to invest or trade, there are Few questions you need to ask yourself before your first step in stock market.
Okay I think I can invest in stock markets, now what?
Before start investing I would recommend you to know the The Basic Terms of Stock Market and Basic Terms of Investment and Trading because these information are not just simply good to know, you really need to know them, even before you start following any share.
Should I get a Deamt account?
At the beginning stage you do not need a Demat or a brokerage account. At the beginning you should start studying about stock markets and there is no need to have a demat account unless you are ready to trade or invest.
How many days do I need to study about stock markets?
Before you start trading or investing, I always recommend you to study and practice as much as you possible. If you really persistent to know minimum time, then I would suggest you to study and practice at least one month to three months. The more time you invest, the better you learn.
What should I study and practice?
At the beginning I would suggest you to study only. Study the stock market. In this time you need to read about stock market news, stock news, including your domestic, international stock market news. You also need to keep an eye on current affairs including economical, political and social all the time. Because every important news have direct or indirect impact on stock market. So, at the beginning stage you need to know and understand the stock market and news impacts on it.
When and what should I start practicing?
After a month or so, when you start thinking that you have known and understood the basics, then you need to practice predicting about stock market, I call it prediction game. In that time you need to select a few shares and try to calculate and predict which stock price would increase or decrease in next several weeks, you must to practice this everyday. If your predictions are correct and the stocks are going accordingly as you have calculated, then you are doing it correct and you have known and understood the market good enough, and you are ready to start investing or trading. If your predictions are not correct and the stocks you selected are not moving as per your prediction, then you have not learned, known and understood the market enough to start investing or trading yet. In this case you need to learn and study more and try again and again until you succeed.
How long do I have to practice to predict?
If your predictions are correct then only think about investing, else I will never recommend you to invest at all. If you take my suggestions then I would suggest you to practice at least one to two months. Again if your predictions are correct and you can spend more time then it would be better for you. The more time you invest the more accurate you will become.
Should I start investing or trading?
For beginners I always recommend to start with investing rather than trading. As trading itself is very risky, even for experienced investors or traders. So, I would suggest if you are starting, then start with investing.
What type of investment should I do?
At the beginning it is recommend not to look for higher returns. Instead you should be looking for accuracy. So, my suggestion would be, start with short term investments. At the very beginning you need confidence more than you need higher returns. So, if you keep on getting smaller returns in your investments, it will boost your confidence and prepare you to take bigger risks. Once you are confident enough, then you can go for higher returns with bigger investment.
On which company should invest in?
For trading and intraday you can choose any company a per your choice, however for investment I would always suggest you to go for reputed ones. Because no one would be interested in acquiring or taking over a smaller or lesser known companies in the event of bankruptcy or insolvency. However it is quite opposite in case of reputed ones, as there would always someone to acquire bigger and reputed companies. So, I would always recommend you to invest in reputed companies over lesser known ones, so your investment could be comparatively secured.
As and Example: In India when Satyam scam was leaked, within a week the company's share price dropped from 200 to 12. However after Mahindra took over the company, stock price started increasing again. Now, if it was any XYZ company instead of Satyam, no one would have shown any interest to acquire.
Further reading required for stock market basics Few preliminary basic terms of Trading and Basic homework for beginners in stock market. For advance knowledge in stock market please go through with How to read Candlestick Chart without any complication, How to calculate support and resistance level, How to read financial report or Balance-sheet, When Why and How stock price changes, and Few things need to care about while trading.