If you are a beginner who wants to understand and learn the basics of share market in India than this step by step guide will going to help you start your trading and investment journey.

However, before we begin to know the basics of share market it is very much important to know why one even need to trade and invest in share market?

It is because trading and investing in share market or stock market is an excellent way to grow your wealth. The share market has the potential to not only give you higher returns on your investment but it also help anyone looking to make a career out of it.

Having said that, let us first understand through a simple example on what happens if you choose to invest and vice versa.

Why Invest In Share Market?

This is the most important question anyone would have in his/her mind, let us debunk this through an example. We will be taking an example of investing through an Systematic Investment Fund (SIP) as it is much safer for any beginner who is looking to invest in share market.

There are three friends by name Krishna, Dani and Kuldeep after completing their education, they started working in a company. All of them are of same age group and started working at 25, as they were very close friends all of them stayed together and enjoyed their company.

They decided they won’t work till retirement and wanted to open their own organization, but for this they need some capital, therefore all decide to save some money from their salaries and invest that in any mutual fund scheme till they reach 40.

This way they will have some money and together can start a small organization. However, when you are young saving and investing does not look a great idea.

Instead we want to enjoy and spend our money in buying luxury items, branded clothes, or may be in some other thing which we can’t discuss here? . It really takes efforts and patience to save and invest and very few people able to do it.

Mostly we are habitual of instant gratification, But those who do it will live better financial life afterwards. Coming back to these three friends Krishna was determined about his business and he started a monthly SIP  with Rs.3000.

Time passed both Dani & kuldeep were busy in their own life, when they reached 30’s one day krishna asked them about their future plan and their savings, dani and kuldeep told their respective situations or say excuses and why they did not started.

Dani realized as most youngster only realize when they either reach their 30’s or in late 30’s, he has to start saving and investing, krishna told him about his SIP  of Rs.3000 a month.

Dani thought alright I am late but I can invest more than what krishna is investing so he started investing with Rs.4000.

After 5 Years passed Krishna again pointed them about their future business and plans, dani said oh don’t worry I too started it 5 years back and its even more than what you are investing.

Kuldeep standing nearby felt ashamed for a while and said sorry to both, he promised he will be investing now and much more than both. Kuldeep started Monthly SIP of Rs.7000.

When time came and they reach 40’s all of them decided to withdraw their respective investment and use it to start their dream company.

Keeping above calculation of their investment with time period (years) and taking an average of 12% returns on their investments, below image represent the same:

Below graph shows you the complete picture:

Wooh, Even after investing more than dani and krishna kuldeep left far behind, if you see the total invested amount for all, it is only difference of Rs.60,000 but the amount received at the end to all of them have major difference.

This is what is called as power of compounding the early you start investing the more beneficial it is for you. I hope this gas clear your doubt now on why need to invest in share market.

Knowing the basics of why to invest is the best way to build stronger roots to make your financial dreams come true.
Now that we have cleared this concept of WHY, let us understand HOW you as a beginner can start trading and investing in stock market.

Open Best Trading/Demat/Mutual Funds Account Within Minutes Online paper-less and start trading & investing online in stocks, derivatives, commodities, currencies, mutual funds and ETFs 

Basics Of Share Market:

I won’t be wasting your time telling you the history of it all started and will directly come to the point, if you are interested you can read stock market history here.

First thing you as an beginner need to understand is the difference between share market and stock market. However most of the people do not know this basic difference.

• The share market is a place where shares are either traded or issued.
• Whereas stock market is similar to share market except that in share market only trading of shares are allowed, while in stock market trading of shares, derivatives, bonds, commodities, mutual funds etc. takes place.
• There are two kinds of share market, the Primary market and the secondary market.
• Two important stock exchanges in India are the NSE (National Stock Exchange) and the BSE (Bombay Stock Exchange).

There are two kinds of share market, the Primary market and the secondary market.

• In the primary market a company gets registered to issue shares and raise money from public or other investors.
• Any company enters primary market to raise capital and the first issuance of share for raising capital is known as IPO (Initial Public Offering). This is also called getting listed in a stock exchange. Once it gets listed in public domain on any exchange (NSE , BSE) people can trade.
• Once the shares are sold in the primary market it enters the secondary market for trading. In the secondary market the investors can enter into position or exit as and when they feel like. Any trader or investor now can easily though there fingertips trade or invest its money.
• Investors seek the help of the broker, who on their advice take positions facilitating the process.

Investment in share market is risky and therefore is governed by a regulatory body known as SEBI (Security Exchange Board of India). SEBI is mandated to oversee the primary and the secondary market and holds responsibility of both development and regulation of the market.

The main aim of the SEBI is to ensure that end investors benefit from safe and transparent dealings in the market. SEBI helps in Avoiding unhealthy practices done from any corporate clients or disproportionately taking any benefits from market (e.g. Harshad Mehta scam, 1992,  Satyam computers scandal 2009) etc.

Let us discuss in brief about stockbrokers as they are the one which will help you in placing your trades.

Basics Of Stockbroker:

A stock broker is your gateway to stock exchanges. Stock broker is one of the most essential part of share market. It’s very much similar to a organization (including govt. or private banks and independent discount brokers) registered with SEBI & hold stock broking license with them.

They provide services to an individual trader or investor in opening of a trading & demat account. I will address the role of trading and demat account separately.

Suppose you want to start trading and investing today, however for that you can’t go to National stock exchange‘s office. You can look for broker online or nearby your local area.

For example:

Upstox who is one of India’s biggest and best broker in terms of active client they have more than 7.5 million and total client base of 10 million (1 crore+). You can easily open a demat and trading account that too online with them.

Here is the link to apply for free upstox trading and demat account online to get best trading & demat account service in India.

You will just need your Aadhar linked with your mobile number and pancard to apply online hassle free within seconds.

The broker helps you execute your buy and sell trades. Once you open account with them they will provide you, your login-ID (client-id) and password to your mobile no., email id. You can use it to login to their respective trading platforms and start trading online by yourself.

If you are not technology driven or do not have much time, you can simply call them and ask them to place orders on your behalf.

However you need to let them know what exactly you want to buy, quantity, at what price etc.

Note: You can open a best trading, Demat & mutual account Here

So in simple words Brokers act as a middleman or mediator between you and exchange. Now that we have understood stockbroker another important thing you as a beginner should know is the role of trading and demat account in stock market.

Basics of trading and demat account in stock market?

I will explain this in short as both have a definite purpose for which they are used. You will become clear after know the basic difference b/w trading and demat accounts. You can read in full detail about both types of account separately on moneycontain.

As an example, suppose you buy shares of HDFC bank from your trading account through call to your broker or by using there online trading platform. The moment you buy and the trade gets executed the purpose of trading account is finished.

Now, those shares that you have bought will require a place to get stored, this is where the purpose of Demat account comes in picture.

These shares gets stored electronically to your demat account, so that in future when you want to sell them, like after 1 month or even after 3 days or 10 years, you can easily do so by a click.

In brief trading account is where your buy and sell orders get executed whereas demat account is where your shares are held (stored).

One more good to know info is that there are two depositories in India who offers you DEMAT account & there is no difference in terms of operation or quality of service.

This is your choice to decide which one you want to go and sometime it depends upon your broker too(as they also select which depository they want to associate with).

1. National Securities Depository Limited (NSDL)
2. Central Depository Services (India) Limited (CDSL)

In other words, a Depository is a financial mediator who offers the service of Demat account.

Note: You do not need to go to them directly for opening Demat account. Just contact your broker where your trading account is opened or you are about to open it.

That’s all you need to know about them, until you are doing any study or courses related to finance. You can learn in more detail here.

Basics Of Indian Stock Exchange:

Just like normal markets from where you buy (as consumer) and sell (as manufacturer ,distributor etc.) For financial products like stocks, bonds, commodities, currencies, derivatives, and so on there is a place which is known as Stock exchange.

It helps all kind of investors and traders to participate in different financial products as per their choice.

However one more good to know info is there is something called OTC(over the counter market). If a stock does not trade on a listed exchange, it can still trade in the over-the-counter (OTC) market, which is a less formal and less regulated venue.

These OTC-traded shares typically will involve smaller (and riskier) companies, such as penny stocks, since they may not meet the listing requirements for established stock exchanges.

There are 5 major stock exchanges in India:

1. National Stock Exchange of India(NSE) Ltd.
2. BSE Ltd. formerly known as the Bombay Stock Exchange Ltd.
3. Indian Commodity Exchange Limited(ICEX)
4. Multi Commodity Exchange of India Ltd.(MCX)
5. National Commodity & Derivatives Exchange Ltd.(NCDEX)

You might be thinking as if now, there are so many exchanges which one should you go for or why there are so many exchanges? Do not worry our main focus will primarily be on NSE & BSE.

As a beginner one should always start with easy things just like in math until you know simple rules of calculation like add, subtract, multiply, divide it is not worth learning algebra, statistics or integration, differentiation.

So will stick to basics first, however let me tell you few things good to know about these exchanges.

National Stock Exchange of India(NSE) and BSE Ltd. both deals in this segment of market mentioned below.

 1. Equity

2. Equity Derivatives

3. Currency Derivatives (including Interest Rate Derivatives)

4. Commodity Derivatives

5. Debt

There are multiple segments or you can say financial products available just like a supermarket. It’s up to you to choose, the other exchanges mentioned above except these two deals only in Commodity Derivatives.

So at-last here is quick revision through a image about who all participate in stock market:

Attention: Right now our only focus will be on Equity also know as cash segment. As a beginner in share market one should always start with this financial product.

Below image represents the same in totality of how share market works step by step.

The reason I want you to have a basic understanding not deep right now, as you are about to begin to enter in to new world of opportunities. It’s always better to know a little more than others for a upper hand.

There is always lot to learn, however until you play cricket or for that matter any other game, just by looking at it might seem hard or easy to you, the best thing is to start playing. What I mean is to experience it and than decide, not just by reading or looking at it.

Hence I would advise you to keep reading best material or blogs online like moneycontain for enhancing your knowledge, at the same time open a trading and demat account with best broker like Upstox, have an experience, it won’t cost you more than 100 bucks to start trading.

But with little caution, hold your horses and do it with little money, until you learn enough as  “For learning there is no limit“.

So till now we have discussed about the need to invest, basics of share market such as role of stockbroker, SEBI, trading, demat account, IPO, stock exchange but now comes the practical example on how you can start to invest or trade.

For this to understand will first know in brief about types of trading, different order types and how you can place it in a live market.  So let us first understand the different the two main types of trading that happens in stock market.

Open Best Trading/Demat/Mutual Funds Account Within Minutes Online paper-less and start trading & investing online in stocks, derivatives, commodities, currencies, mutual funds and ETFs 

Basics Of Intraday Trading:

To start Intraday trading you have to place your trades within a defined time limit, you can buy and sell stocks for a minute, keep it for hours but make sure at the end of the market hours you have close your position.

In case of intraday trading, the trades are closed out on the same day so the profits or losses, if any, are either credited or debited to the trading account instantly.

Intraday trading also known as day trading, is type of trade that happens within a day. So this is what happens, when you are placing your trades as intraday:

Equity and equity derivatives timings in India is morning 9 a.m. till 3:30 p.m. Avoid the equity derivative as of now, it is much different and requires more learning, but you will gather with time, as a beginner just focus on to Equity only for now.

• You can buy or sell shares even for a minute or hour or before the market gets closed.
• Suppose PNB (Punjab national bank) is trading at Rs.40, you bought 1000 shares now you can sell this shares just after you bought it or can keep it for 1 or 2 hours or before the market gets closed.
• You have to square off (to close your opened position) before the market gets closed same day.
• Brokers usually have a dedicated team named RMS (risk management system), they will auto square off your all opened position, if you do not do it from your end, at whatever market price that share is trading.
• Brokers usually do auto square-off  before the exact market closing time mostly it happens from 3:15 till 3:25.
• So whenever you place order as intraday keep in mind to select MIS(Margin intraday square-off). This is the type of order you select while trading intraday.
• You can convert your intraday position to delivery also known as CNC (Cash and carry), however you should have complete margin amount in your trading account to do so before market gets closed.

Note: We will only be discussing about equity (stocks) market here, this does not apply to commodity or currency as the timings are different although the rules remain the same.

If you believe that the price of a stock is likely to fall during the day, you may sell the shares without even buying at the first place. Later, during the day, depending on the profit, you can buy the stock at a lower price to book profit.

What this means is suppose there is a stock named ABC trading at Rs.100, you believe (after research) this stock is going to fall instead of going up, in that case you can put a sell order at Rs.100, and if the stock fall to let say Rs.97 within market hours, than you can buy it back at lower price making a benefit of Rs.3 per share.

So if the quantity is let say 500 than your profit (excluding brokerage and taxes) would be 500*3= ₹1500.

Basics Of Delivery Trading:

Delivery trading is just opposite of intraday trading, to start delivery trading as an investor, you take shares of a stock that you buy to your demat account, instead of selling it same day.

Moreover in such transactions, you can hold the shares for a short, medium or longer-term depending up on you.

The duration can range from two days, months, years or even two decades or more.

If you have placed order as CNC, cash and carry order type or delivery order type, than you first require full margin to place the order . So if you are buying let say HDFC bank shares, trading at 800 per share.

You have to have the full Rs.800 (per share) to place the order. Having said that there are few stock brokers who do provide the margin facility in delivery trades as well two of them is Upstox and 5Paisa.

Once you have placed the order, you can still sell the shares before the markets gets closed, however this time RMS will recognize your order type as delivery and will not square-off your open position. This shares will get deliver to your Demat account.

You can keep those shares as long as you want or sell it whenever you feel so its totally up to you.

Below image tell us in brief about difference between intraday and delivery based trading.

I hope you now have basic understanding of two main types of trading that takes place in a live market. Now will understand how you can place an order in stock market within few easy steps.

Basics of Buying and Selling shares in Stock Market:

In order to buy and sell shares online, You can use different order types such as market order, limit order, cover order, bracket order, stop-loss limit order, after market order etc., and product codes such as MIS which is margin intraday square off used for intraday trading and CNC refers to cash and carry for delivery based trades.

MIS as a product code is used for trading Intraday Equity, Intraday F&O, and Intraday Commodity Trading. You enjoy additional margin using the MIS product code.

All the positions under the MIS product code will get automatically squared off, if you do not do it from your end before the market gets closed.

Depending upon your broker the timing for auto square-off may vary 3:15 to 3:25 usually. Some brokers do charge for auto square-off trades so check with them while opening your account.

Whereas Cash and Carry (CNC) simply means you buy shares and take it to your demat account for holding it for any time frame you want to keep it.

If you have placed order as CNC, cash and carry order type or delivery order type, than you first require full margin to place the order . So if you are buying let say HDFC bank shares, trading at 800 per share. You have to have the full Rs.800 (per share) to place the order.

Other than this one should also know the time condition of order types, basically there are 2 time conditions:

IOC – An Immediate or Cancel (IOC) order allows to buy or sell a security as soon as the order is released into the market. In case if orders is failed then it will be removed from the market. There are chances of Partial match for the order, and the remaining unmatched portion of the order is cancelled immediately.

DAY – As the name suggests, a day order is valid for the day on which it is entered. If the order is not matched during the day in market, the order gets cancelled automatically at the end of the trading day.

If you do not know, Intraday trading often called as day trading trading in stock market refers to buying and selling of shares of any stock within market hours.

Intraday trading is not limited to equity (cash), you can buy and sell same day in other market segments like derivative (futures and options), commodities (gold, silver, crude-oil) or in currency segment as well.

In case if you forgets to sell the position or buy (in case of short sell), the trades are executed(squared-off) automatically by your stock broker before the market closing.

Delivery trading is just opposite of intraday trading, In delivery trades as an investor, you take shares that you buy to your demat account, instead of selling it same day.

Moreover in such transactions, you can hold the shares for a short, medium or longer-term depending up on you. The duration can range from two days, months, years or even two decades or more.

I hope you know have a better understanding as the basics have been cleared, Moreover the concepts and functions  remains the same whether you use any stock broker.

Let us take example of one of India’s best stock broker Zerodha trading platforms and understand how to place orders online in live market.

A market order is an order to buy or sell a stock at the current price the stock is trading in market. So when you place such order whatever price the stock is trading at, your order will get executed at that rate.

In the image below AXIS BANK is currently trading at ₹394.55  So, suppose you placed market order, It may happen your market order gets executed at (394, 394.20, 394.80).

Because it takes few seconds for your order to sent to exchange and it might happen that the stock price have fallen or rose to few points.

This happens because prices fluctuate ever microsecond. The latest-traded price also know as LTP in the market may have changed by the time you place (bid) your order.

Generally, this type of order will be executed immediately. However, the price at which a market order will be executed is not guaranteed.

Let us take other order type examples in zerodha.

On contrary to market order, a limit order is an order that places a limit on the price you are willing to pay to buy or sell a stock. Thus, a limit order guarantees a price, but whether the trade will get executed remains uncertain.

As you can see in the image below you now have the option to put the price in a box, you can set at what price you want to buy the stock.

This is because the stock may not reach the price at which the order is placed during the trading day. So suppose you placed a limit order to buy a stock when its trading at 100, you put a price to buy it at 105.

However the stock did not reach to that price, so exchange did accepted your trade but the order remain un-executed as the price of the stock did not came up.

Likewise there are different order types which may be helpful depending upon you strategy.

Below image represent what you need to do step by step:

Once you have placed order

– broker will send it to exchange

– Exchange will find counter party

– Exchange than confirm to broker

– Broker debit/credit your account depending on your order type.

Another important thing you as a beginner in share market should know about are margins and how you can benefit from it.

Basics Of Margins In Share Market:

Margin in stock market refers to buying/selling of securities (shares) by borrowing money from your broker. This is very much similar to taking loan for short period of time.

Let us understand this with a simple example:

Suppose you want to buy shares of ABC company currently trading at Rs.80. You have 1000 rupees in your trading account , how many shares you can buy with this money?

80*12=960, so approx. you can buy 12 shares, although with this low quantity, the profit you will earn if the shares prices move 1 rupee up and down is only 12. This does not look attractive at all.

That is why the brokers would provide you margin to trade with larger quantity. So they will give you upto 5X times margin (may be more), now multiply your initial investment 1000*5, you will have much more money to buy the stock and with more quantity.

Now the profit per share will be more as the quantity got increased.

Sounds attractive now, as your 1000 becomes 5000 and with that you can buy at least 60 shares and per 1 rupees movement will give you 60 bucks. Take it as an extra power given to you, now it’s up to you to decide whether you want to use it or not.

Hope you have understood the basics of how margin works in share market. I am just trying to make you understand in simple terms I can use high technical, financial  jargons, but as an beginner it does not make any sense.

Open Best Trading/Demat/Mutual Funds Account Within Minutes Online paper-less and start trading & investing online in stocks, derivatives, commodities, currencies, mutual funds and ETFs 

Conclusion:

I know that’s lot of stuff to read and understand for any beginner in share market but you have to be gradual in process, what I mean is take your own time and pace, there is no hurry the market is going nowhere. At last I would suggest you to keep few more things in mind.

There has not been, until now, the discovery of a method wherein one can invest in share market without losing some money. The lure of making easy money in equities has made some investors bankrupt.

Making money in equities requires odes of patience and discipline and surely not to forget a great deal of research and sound understanding of the market, among others. Although no sure shot formula has been discovered, here are some points to remember before investing.

• Avoid the herd mentality and take informed decisions.
• Invest in the business you understand and do not try to time the market.
• Follow a disciplined investment approach and do not let your emotions or gut feeling cloud your approach.
• Create a broad portfolio and have realistic expectations.
• Invest only your surplus amount and monitor rigorously.

Important Points to be considered before buying a good stock:

1.Understand what the company does

Warren Buffet says do not invest in companies you don’t understand. Check the products that the company offers, its market share, its customers or clients. One can look at the annual report or the company’s website for the same.

2.Company’s levels of profitability

Company earnings can at times be complicate to understand as it involves various adjustments. One can read quarterly or annual report to understand whether there have been any variations from the reported earnings.

3.Company earning history and outlook

Check out how the company projects its top and bottom line for the future and is it realistic. Also do check its historic earnings as to see is it consistently providing satisfactory results or not. Understand which part of the business life cycle the company is in. Invest in growing companies and try to avoid companies in stagnate and declining phase.

4.Porter five forces

Analyze the company on the five parameters that Porter has mentioned. Its competitors, bargaining power of the buyer and the supplier, threat of new entrant and industry rivalry.

 5.Dividend

Company paying dividends are like fixed income on your equity investment. So also do check the dividend history and if you don’t have much time to track the portfolio then simply park the money in companies paying high dividends.

The crux of the matter is if you want to trade more than investing below are the list of things you need to do before making that trade.

• Understand the support and resistance zones, pivot points and learn how to find it correctly on chart.
• Learn the basics of charts and candlestick patterns, this is very much important to know when to enter and exit in a trade.
• You should be aware about the moving averages to know whether the stock is in upper range or lower.
• Use technical indicator such as MACD or Bollinger Band, RSI, there are many but learn and try to implement at least one of them.
• Get yourself aware about volumes, as you should trade when volumes are higher for both buy/sell.
• Place the trade, put the stop-loss and relax, even if it goes against you as this will happen. Learn from the losing or winning trades both.

Whether you like it or not but if you do not want to be rely on anyone than you should have at least basic understanding of all things mentioned above. There is no other way, if you want to trade by yourself and earn living out of trading.

Yes, there are companies, websites which do give you the recommendation but you have to spend money, now it’s totally up to you to decide.

Now, that you know the different trading styles and have adopted few of them and also learned to implement the technical tools and resources, the learning should not stop here.

That is where the role of good articles, blogs and books based on stock market comes in picture.

There are many great books based on trading, investing and overall finance that one should always have in his/her home.

For people who is looking to invest and want to have an edge over others than devote your time in understanding few very important aspects given below:

1. Basics of Annual Report Of A Company

2. Basics of Balance Sheet Of A Company

3. Basics of Profit and Loss statement Of A Company

4. Basics of Cash flow statement

It is next to impossible to cover all of them under one post as they are huge topic hence I have made them available to read and understand in sections, you can click on above links in hierarchy for better understanding.

As a beginner in any field one should know that there is nothing called perfect start, one can do as much learning or practicing but at the end of the day what matters is involvement.

Learning about the finance and stock market requires indefinite time, hence start slow, steady step by step to reach the ultimate goal of financial freedom.

You can start trading or investing with as little as Rs.100, there is no compulsion. The amount of money or wealth you can create is unlimited, it up to you to decide when to start.

In the end remember this “Perfect is the enemy of good.” So keep learning. I wish you all the luck in your financial journey.

If you want to know about the derivatives market than learn how futures trading works here.

Also check and learn the basics of Option Trading here.

Open Best Trading/Demat/Mutual Funds Account Within Minutes Online paper-less and start trading & investing online in stocks, derivatives, commodities, currencies, mutual funds and ETFs 

Looking to make any investment in mutual funds than you should use free moneycontain Mutual fund SIP calculator with inflation here.

If, you have liked the content please do share it with your friends or on social media, as sharing do bring the good karma. If you have any questions or feedback, you can let me know in comment box below. I will try to answer as many as possible.

Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand about Basics Of Share Market For Beginners, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.

Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.