Trade in share market | Basic rules for investing in the stock market
The stock market is a path that leads you to wealth creation opportunities. Stock market has the potential to give you profit. Volatility is an important part of the stock market.
As an investor or trader, you may see gains and losses, ups and downs. Therefore, it is important to learn how to trade the stock market as a beginner.
What is stock trading?
Buying and selling of shares in the secondary market is commonly called stock trading. Therefore, it is important to understand the primary and secondary markets.
- Primary Market: The primary market in which companies issue new securities and offer them to the public. Hence the transaction takes place between issuers and buyers.
- Secondary Market: In this market you can buy and sell shares issued in the primary market. A transaction takes place between a person who is a seller and a buyer. A stock exchange or broker acts as an intermediary in the secondary market.
Rules for investing in the stock market
Investing in the stock market can be risky. However, these risks can be mitigated. You just need to define your investment goals. No one has found a surefire formula to succeed in the stock markets.
You may choose to be a trader or an investor, but here are some pointers that will help you minimize your risks.
1. Avoid herd mentality
One needs to make a well-informed decision when it comes to investing. If everyone around is investing in a particular stock, potential investors tend to follow the same path.
2. A well-informed decision
A detailed analysis needs to be done before investing in stocks. Adequate charts and experts will advise and guide you to find out the current and future trends in the development of various sectors. For traders, various algorithms have been created, and they provide other features such as real-time information, alerts that help in managing positions. Accordingly one can make his investment strategy
3. Invest in financially sound companies
This is part of the advice given by experts in the field. Investing in shares of reputable companies that have been in the market for a long time, are financially stable and have a good track record of consistent growth and returns over the past several years.
4. Follow a disciplined investment approach
A systematic and disciplined approach to investing has always been beneficial to the investor. As a trader, define how long you will hold a stock before you buy or sell. As a value investor, you should hold on to your investment through the ups and downs of the market.
5. Diversify your portfolio
This is a crucial factor to get maximum return on investment with minimum risk. The level of diversification depends on the risk-taking capacity of each investor.
6. Never borrow to invest
As an investor it is advisable to invest only your surplus funds. Investing in the stock market involves risk and there will be occasions where losses will occur due to market volatility. So borrowed funds will only add to the existing risk you are taking.
7. Keep a tab on your investments
Any significant event in any part of the world will affect our financial markets. Hence we need to constantly monitor our portfolio and effect the desired changes in it.