1. Overview of the stock markets
Share (Securities) Market are not running in any "Parallel Universe". They are as Real as it can get.
Share markets are just a mirror image of how our economy is performing.
But the foremost question is that how can some number shown in any stock market website or any other finance site will relate to the economy. Answer would be that what the prices shown depict on these sites is the last traded price of that scrip.
Now next question would be that where are these prices actually shown and how to enter into a transaction? What we call as a Terminal is the screen based tool used to enter into a transaction. (This place is no better than a fish market. you just have to see and read numbers in the most boring of the font. They should use comic sans instead. This screen based tool (Terminal) is accessible to people who have opened a trading account with a Share Broker (Meaning of Broker and trade cycles to be explained in further posts, right now just assume it as a random person)
Trading account is like a bank account which allows movement of shares instead of money. Demat account shows you’re holding or your wealth as represented by shares
So coming back to how share market is related to the economy, following are the steps to reach this conclusion:
1. Company A starts from Scratch.
2. Many Companies Start and grow which forms a Economy.
3. They ask for money from Public in the form of Equity (Word used to represent ownership instead of "Udhar", so share holders are owners of the company and majority rule applies for control of the company)
4. Company goes to the Stock Exchange to get its shares registered
5. Stock exchange has a lot of companies
6. Value of Companies increase when they make profits, prices of shares goes up
7. To get an overall perspective, best companies are selected and an index is made to represent all values
8. National Index for India is NIFTY50 shown by the National Stock Exchange of India Limited
2. Myth 1 - Stock Investing is a guaranteed ladder to riches.
First step in stock investing is that you set what are you seeking from the markets as these are extremely volatile and trades are very frequent. There are two parts of putting your money into securities. First is that you maintain a trading account, save some portion of your income for future use and purchase shares of a company which has better growth prospects (Like Reliance, Axis Bank or any other known company. These are known as Blue Chip Companies).
Other one is to trade through information motivated trades which are mostly based out of events like earnings of a quarter or new project being awarded to the company. (list for such events is endless and outcome of any event can only be judged by how market participants perceive)
Thus, first step to enter in to stock markets is to decide whether you are an investor or trader. Each has its own Risks, Limitations and rewards.
Second step is to keep gathering more and more information you can about the type of model you prefer before setting up your first trade.
Whatever may be your stance towards equity markets, it needs a lot of homework and vigil to keep a check on the pitfalls in the form of losses.
3. Myth 2 - You only end up with losses in stock markets.
No Informed participant will put stock investing in the bracket of gambling, betting. The fact is, stock investing involves risk and risk is something which can only be avoided by setting up targets and deciding beforehand what you perceive through stock markets. To manage risk, there is one golden rule: DO NOT INVEST MORE THAN YOU CAN AFFORD TO LOSE. There are instances when we start booking our gains early and cutting our losses after due time has passed. When something like this starts happening, it is time to watch and take care of the activities that you are doing in the stock markets as you may end up making losses more than profits.
4. Myth 3 - Stock investing require a lot of time:
Unless you are a full time market enthusiast, all it needs is some regular monitoring in terms of knowledge gathering which is not at all a heavy task. One benefit of monitoring your portfolio is that you dont have to worry about budgeting or any financial issues. As once you enter into the world of saving, managing day to day transactions would be like walking in the park. While entering into the stock markets, just begin by investing in a particular company whose business environment is well understood by you. Entering into unknown territory can be hostile for your portfolio.
5. Myth 4 - You need a lot of money to invest in stock markets:
Even a rupee saved for multiple times adds up. You can start with the smallest denomination like 500 per month and add up according to your Income Portfolio. There have been considerable instances where people have accumulated a large corpus just by inculcating regular saving habits and not waiting to gather a huge amount before starting any investment. The power of compounding and systematic regular savings can allow you to achieve your financial goals in a very planned manner.
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