Meaning and Basics of Trading in Stock Market

Meaning and Basics of Trading in Stock Market

Stock market securities are market-linked instruments that can multiply your wealth at a faster rate as compared to fixed-income securities. In other words, they are long-term investments with high wealth generation potential. Stock market securities include direct equity, mutual funds, bonds, etc. 

Stock market trades, on the other hand, allow you to make short-term gains from stock price movements and market volatilities. But, before you enter this alluring world of stock markets, you need to know its meaning and trading basics. We will throw some light on the same in the consecutive paragraphs.

Meaning of stock market

Stock market is a marketplace for buying and selling securities, especially shares of listed companies, which represent ownership rights in the issuing company. The stock market can be further classified into two markets – primary and secondary.

The primary market is where newly listed companies float shares to investors for the first time. This process is known as an IPO (Initial Public Offering). In other words, online IPO is the process by which private companies go public for the first time. Issuing shares helps companies raise requisite capital for funding their business growth and expansion activities. Besides, companies also issue additional shares in the primary market.

A secondary market, on the other hand, is a meeting place for buyers and sellers to trade or exchange financial assets like shares of listed companies, commodities, derivatives, etc. Such trades are facilitated on the floor of an organized exchange known as the stock exchange. India has primarily two big stock exchanges – NSE and BSE. 

With the advent of the internet, stock market trades can now be executed online, wherein buyers and sellers interact virtually. As per SEBI guidelines, you are mandated to open a Demat account as well as a trading account for online stock-market trading in India.

Demat Account

Demat” is the short-form for “Dematerialization”. Hence, a Demat account is an account that holds your securities in dematerialized or electronic form. The main purpose of a Demat account is to facilitate instant digital transfers of share certificates while executing online trades. Moreover, your physical security certificates can be lost, stolen, forged, or mutilated. Such risks are eliminated by the Demat account.

There are mainly 3 types of Demat accounts – Regular, Repatriable, and Non-Repatriable. A regular Demat account is open to investors residing in India. If you are an Indian citizen residing abroad and wish to transfer funds to India, then you may open a repatriable Demat account that is linked to your NRE (Non-Resident External) account. A non-repatriable Demat account is also open to Indian nationals living abroad, but it does not permit money transfer to India. It is linked to the NRO (Non-resident Ordinary) account.

Some brokers allow you to open a Demat account online for free. They may even waive the Annual Maintenance Charges (AMC) for the first year of operation. 

Trading account

A trading account is essential for buying and selling securities listed on stock exchanges. It is linked to your Demat and bank account. Your bank balance funds the stock market trades and accordingly your Demat account is credited or debited with the traded securities. In other words, your online trades are successfully executed when your three accounts work in tandem with each other.

A trading account provides you with a robust platform for accessing multiple exchanges simultaneously. Many of these online trading platforms have built-in technical indicators that allow you to study market momentum and predict price movements to seize profitable trading opportunities. Some brokers allow you to also open an online trading account at zero cost.

Final words

The online Demat and trading account application process is easy, fast, paperless, and trouble-free. You can complete the entire process with a few clicks from the comfort of your home. While stock trading in India traditionally included intraday and delivery trades, the past decade has witnessed a surge in derivative and margin trades as well. Thus, the utility of a Demat account and a trading account has increased manifold.

About Ashish Singh

I am a blogger and writer too. I love to write on business, finance, lifestyle, digital marketing, and technology.

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