WHAT IS STOCK MARKET & HOW TO GET STARTED

Let us start our learning journey with the very basics of The Stock Market, in this article we will be learning about the stock market basics, some common terms, and how to actually start trading and by the end, you will be able to buy your first stock. So fasten your seatbelt and get ready to start your trading journey.

What is Stock and Stock market?

"A stock is a security that represents the ownership of a fraction of a corporation. This entitles the owner of the stock to a proportion of the corporation's assets and profits equal to how much stock they own. Units of stock are called shares ". In a nutshell, a stock is a small part of a company, when you buy a stock you are buying a fraction of a company's ownership. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets and earnings.

The stock market refers to the collection of markets and exchanges where regular activities of buying, selling, and issuance of shares of publicly-held companies take place. To understand the concept Stock market we have to understand why it exists. The stock market serves two very important purposes. The first is to provide capital to companies that they can use to fund and expand their businesses. If a company issues one million shares of stock that initially sell for $10 a share, then that provides the company with $10 million of capital that it can use to grow its business. The secondary purpose the stock market serves is to give investors (those who purchase stocks) the opportunity to share in the profits of companies.

Just like we go to the neighborhood supermarket to shop for our daily needs, we go to the stock market to shop for equity investments. Transact in simple terms means buying and selling. Now unlike a supermarket, the stock market does not exist in a physical form. You access the market electronically from your computer. The stock market works through a network of exchanges. Companies list shares of their stock on an exchange through a process called an Initial Public Offering, or IPO. There are two main stock exchanges in India -Bombay Stock Exchange(BSE) and National Stock Exchange(NSE). These exchanges are regulated by The Securities and Exchange of India (SEBI).

How to get started?

When you buy a share, it sits in your Depository Account, usually referred to as the DEMAT account. This is maintained by two companies in India i.e the Central Depository Services Limited(CDSL) and National Securities Depository Limited(NSDL). The depositories hold your shares and facilitate the exchange of securities(shares). You can think of the depository like how a bank keeps your money, depositories keep your shares.

The depositories doesn't deal with clients. This means you cannot directly interact with the depositories (NSDL or CDSL). You need a Depository participant aka the DP to open and maintain your DEMAT account. Think of the DP as an agent to the Depository and just like Depositories, the stock exchanges are too not client-facing. The stock exchange have have "Treading Members" aka Stockbrokers, who in turn renders services to the end client. So when you want to buy or sell shares you have to do so through registered stockbrokers in India. You use bank accounts to transfer funds from your bank account to your trading account which is maintained by the stockbroker.

Also at this stage, you must have realized that the three financial intermediaries operate via three different accounts- trading account with the broker, DEMAT account with DP, and a Bank account with a bank. The key difference between a Demat and a Trading account is that a Demat account is used to hold your securities such as your share certificates and other documents in electronic format whereas a Trading account is used for buying and selling these securities in the stock market. All three accounts are interlinked.

Here's a step by step guide to start Stock trading

STEP1: Get a Pan Card

You need an identity proof, a savings bank account, and a PAN card. To get a PAN card, apply for it online at NSDL site. It costs about Rs 100 or so. For a PAN card, you will need three basic documents – identity proof, address proof, and proof of date of birth.

STEP 2: Open a DEMAT account

Apply online to NSDL or CDSL for a DEMAT account or get your chosen share broker to do it for you.

 STEP 3: Open a Trading Account with a share broker

To open and operate your trading account, you will first have to complete your KYC procedures, which will require identity proof, address proof and PAN card number. If you submit copies of your address proof, identity proof, PAN card and a canceled cheque of your savings bank account, the brokerage itself will take care of all other procedures.

After document verification, you will receive a login Id and password and then you will be all set for trading and investing. Now you can log in to your account and make transactions.