Tips Before Trading

TIPS BEFORE TRADING

It is very interesting to invest in shares, though most of the people would like to start with small money.

First of all, you need to know a little bit in detail about the stock market, then about the shares and the mode of their trading. What are the risks involved and how to be smart in dealing with shares?

• Stock Market – It is the place where the shares of listed companies are bought and sold. In India, you have BSE and NSE as two big stock exchanges.
• Shares are bought and sold by you and me only through approved brokers.
• Approved brokers are mostly banks like the ICICI, HDFC, IDBI, UTI Bank, SHCI, are to name a few.
• First you need to open an account with a bank, that has the Demat account facility.
• Go to the respective bank and open a Savings account with deposit of around Rs. 10,000.
• Tell the bank that you want to deal in shares and ask them to open a Demat account. It will be done automatically after signing a few forms.
• A Demat account is nothing, but the account where the shares bought by you will be kept separately.
• Only you could operate that account online, through Internet.
• You could open the online facility offered by the ICICI, HDFC, Axis or others and buy shares you wish and decide the quantity and the price.
• Here the bank will act as a broker. You online order for purchase would be carried out by the bank. They charge broker commission, much less compared to private brokers.
• It is very important for you to have enough balance to your credit in your savings account.
• As and when you buy on line, your Demat account will be credited with those shares. The money for the purchase will be automatically deducted from your account by the bank.
• You also have to keep looking for opportunities to sell the shares that you have already bought and kept in your Demat account.
• For buying and selling, it is necessary to familiarize which shares to be bought at what prices and sell them at what price.
• As and when you decide to sell (depending on the price quoted in the market) you could sell them through online trading system.
• The moment you sell your Demat account will be debited with the number of shares sold by you.
• Your account will be credited with the amount for which you have sold.
• Depending on the amount of profit earned, tax will also be deducted by the bank (TDS). The bank will give you a TDS certificate by the year end, i.e., March 31, of that year which you could attach with the return to justify the tax payment.
• When the shares could be bought or sold?
  Always sell the shares when the price is up and buy when the price is down. Every body had to adapt to this formula.
• What profit should it give you?
  You buy a share for a particular price. Take the amount as investment. Any bank will lend you at ten per cent interest. It will give you 24 per cent return if the share price rises in such a way. Do not wait for the market to crash and start searching for buyers for the price you quote.
• After selling, never look back and repent for what profit you have earned, had you delayed the sale. Be happy that it did not happen otherwise. This is the best way, to sell.
• If you want to buy, look for 52 week low, look for the peer companies, their price and compare it with the company you want to buy.
• Look for the prospectus, future plans and the profit the company ought to make in the next year. Take the perception or a change and buy.
• You cannot take profit in the buys. Losses do occur as long as you are at decent surplus for which you have no reason to be unhappy.

KEY IDEAS - BUYING AND SELLING

KEY IDEAS - BUYING AND SELLING

An auction has a lot in common with the stock market. Buying stocks means buying what someone else already owns, the price is set by a kind of bidding, prices change by the moment and depend on demand.

The price for a stock is determined using an auction system. The price, unlike that of most consumer purchases, changes by the minute depending on the value investors place on the stock. If the price of a pair of Shoes is too high it is reduced (“goes on sale”) until it is bought. If still not purchased, the shoes are destroyed. With stocks, the price continues to fall until someone buys.

Just as a rancher uses stock to grow a herd, or as a nursery owner uses stock to grow bushes and trees, a corporation uses stock to grow itself.

Corporations sell stock to raise money and grow the business. When a company sells stock for the first time it is called “going public.” Most major corporations are publicly owned. Companies offer shares of ownership called stock.

Companies also raise money by selling bonds. If you buy a Rs 5,000 bond from a company it agrees to pay you back when the bond matures at some point in the future, in the meantime it pays you interest. Bonds are more like loans. They too are traded on stock exchanges. Bonds and stocks are often grouped together and called securities. Bonds obligate a company to pay the money back. But when companies raise money by selling common stock they don’t pay the money back. That’s a BIG difference.

Instead of promising your money back, companies give a share of ownership. If you own stock in Reliance or Tata, you own a share of the company. If there are a million shares and you own 1000, you own .001 of the company.

As owners, the holders of common stock are entitled to elect the directors of the corporation and vote on major issues. These votes typically take place at the corporation’s annual meeting, which shareholders are invited to attend. Most share owners vote by proxy, meaning that they authorize someone else (usually management) to vote their shares.

You could say the stock exchange sells both “new” and “used” products. Stocks that are “new” called Initial Public Offerings, ( IPO), and “previously owned” stocks traded on the secondary market. By far, most trading takes place on the secondary market.

When you buy shares on the secondary market, your money goes to the previous owner (minus a commission to a broker). But when you buy an IPO, the money goes to the company issuing the stock. Corporations raise billions of dollars yearly through IPOs.

Investing in Stocks

INVESTING IN STOCKS

What is a share?
Do you know friends or family who own their own business? The business you know may be a one-owner business (sole proprietorship) where only one person owns the business or the business may be a partnership between two or more people.

Some businesses become so large they choose to become listed companies with many part owners or shareholders. Larger businesses such as the Reliance Industries and Tata Group have thousands of part owners.

A share is a unit of ownership in a public listed company. A public listed company is listed on the BSE(Bombay Stock Exchange) or NSE(National Stock Exchange) and members of the general public may buy shares in that company. Shares in publicly listed companies are sometimes known as equities, stocks or securities.

Many of us would like to try our luck in the Stock markets. Trading stocks is one of the most lucrative methods of making money.

Here's Why :

1. You do not need a lot of money to start making money, unlike buying property and paying a monthly mortgage.

2. It requires very minimal time to trade - unlike building a conventional business.

3. It’s ‘fast’ cash and allows for quick liquidation (You can convert it to cash easily, unlike selling a property or a business).

4. It’s easy to learn how to profit from the stock market.

But You need to have your basics clear. Unless you do….you will be wasting your time and loosing money. You need to be crystal clear of each and every aspect of Investments, stock options, Stock Trading, Company, Shares, Dividend & Types of Shares, Debentures, Securities, Mutual Funds, IPO, Futures & Options, What does the Share Market consist of? Exchanges, Indices, SEBI , Analysis of Stocks – How to check on what to buy?, Trading Terms (Limit Order, Stop Loss, Put, Call, Booking Profit & Loss, Short & Long), Trading Options – Brokerage Houses etc.