Stock trading might be a simple process of buying and selling of shares of stocks for you but it can be risky to dive in the trading world without having the proper knowledge. So, let’s understand the complete process of stock trading so that it can help you trade easily.

What is a stock?

Stock is a basic term used to describe the ownership of any company. When you purchase a stock, you own a share of ownership in that company. Stocks are also known as equity. The part ownership in the company allows you to get voting rights and capital appreciation when the stock price rises. Companies issue stocks to get money for several reasons which includes debt payment, product launch, expansion of business etc. 

Types of Stocks

  • Common stock– Common stockholders are allowed to vote in shareholders meetings and receive dividends. 
  • Preferred stock-  Preferred stockholders generally don’t have any voting rights but they receive dividend much before common stockholders are issued. They are also given more priority than common stockholders. They are paid from company assets before common stockholders, when a company enters bankruptcy.

Stocks provide higher growth potential when investing for a longer duration. If an investor invests for about 15 years, he will receive good returns. The price of stocks keeps on fluctuating and depends totally on the company’s growth. 

There are several advantages and disadvantages of investing in stocks that you must be aware of-

Advantages of Stocks Disadvantages of Stocks
  • Capital growth: investing in the right stock can help you grow your wealth to a huge extent.
  • Taxation and Inflation: investing in stocks will help you preventing the negative effect of both taxation and inflation as both tend to impact your wealth in the long run 
  • Dividend income : many companies pay dividends to their shareholders which is kind of tax efficient income.
  • Liquidity : stock can be bought and sold at any point of time which makes it a better investment option compared to the other options such as real estate, jewellery etc.
  • Risk : if you end up choosing the wrong stock you could lose your entire investment.
  • Time consuming: buying, selling and selecting the stocks need a lot of research and experience which can be time consuming. 
  • Wrong decisions : the prices of stocks change every minute and if an individual is not experienced enough for trading he ends up buying the stocks and higher prices and then sells it at much lower price because of fear of losing the entire money.
  • Stockholders paid last : if a company gets bankrupt the preferred stockholders and bondholders are paid first 

What is stock trading?

In a simple language stock trading is the buying and selling of stock for money. So if you buy or sell your equity that’s considered as trading. 

There are two ways of Stock trading.

Exchange Floor Trading Electronic Trading
This is a complex form of trading where you have to go and tell your broker to purchase stock from a company and he sends a clerk to the trader who is willing to sell you the shares and once they agree on a price you may get the shares.  This process on the other hand is much more convenient and simpler for individual investors. We have online brokerage platforms though which you can start trading during the trading hours.

How to trade stocks?

Whenever someone thinks of starting his trading journey he will immediately have questions such as what stocks should he go for? Is X company a good investment option? Is $XX too much for this stock? And a lot more. But before starting to invest you should first understand how to go about making a decision of which stock you should buy.

  • Setting up Goals-

So the very first thing is to set a goal for investing. This step is very crucial as this will help you stay focused on achieving your goals. so the best thing is ask yourself why you are investing. You might want to save for your retirement or to buy a car or buy your dream home. Whatever may be the reason but you have to have a goal.

When setting a goal there are few things you have to keep in mind.

  • You should be specific about the goal you are investing for.
  • You should know that you have accomplished the goal.
  • Check out all the resources you need to achieve the goal.
  • If trading is your priority, you will focus more on getting success.
  • What should be the +deadline to know that you are on the right track.

2. Open a brokerage account 

  • Choose the type of brokerage account you need to go for.
  • Consider all the features you need and their associated costs.
  • Select the brokerage according to your needs.
  • Complete the application process by filling all the important details.
  • Get trading details and start investing.

Stock trading requires you to open a brokerage account for holding investments. This account can be opened in a few minutes and allows you to invest your money. If you are not sure about the broker, you can research and invest later even after creating an account.

3.Setting up a stock trading budget

To clear any type of doubt about the stock, go through the charts, earnings, and balance sheets to have a better understanding. At first,it might seem confusing but later everything will be on the right track. 

Allocation of more than 10% of your portfolio to individual stocks can make your savings volatile. So, it’s always better to invest the amount you can afford to risk.

4. Understand market orders and limit orders

Once you have opened your brokerage account and set a budget, you can use an online trading platform to trade stocks. You will be available with different options for order types, which shows your trade status.

  • Market order- Buys or sells the order at the best market price available immediately.
  • Limit order– Buys or sells the stock only at a specific price you set. A buy order can only be done at the lower or limit price. And a sell limit order can only be done at the higher or limit price.

Charges for Investing in Stocks via Groww

 

Types of Charges Details Charges Applied
Equity delivery Charged by broker on purchase orders when equity is delivered in demat account Rs.20 per executed order or 0.05% of order value (whichever is lower)
Equity intraday Charged by broker per executed order Rs.20 per executed order or 0.05% of order value (whichever is lower)
AMC (Account maintenance charges) For managing your trading and demat account Free
DP charges – Buy order Charged by DP for crediting stocks to demat account Free
DP charges – Sell order Charged by DP for debiting stocks from demat account Rs.8 + Rs.5.50 (CDSL charges) per ISIN (company/ETF) per day on Groww regardless of quantity sold
Transaction Charges Charged by exchange for trading – 0.00325% of order amount on NSE

– 0.003% of order amount on BSE

(applicable on both buy and sell)
Clearing Charges Charged by clearing member of NSSCL (clearing corporation of NSE) and ICCL (clearing corporation of BSE) Free
Payment gateway charges Charges for depositing money in Groww Balance Free
stamp Duty Charged by state government as stamp duty for contract note Maximum of 0.018% (but different for each state)
SEBI turnover charges Charged by SEBI (Securities and Exchange Board of India) for regulating the markets 0.0001%
Securities Transaction Tax (STT) Charged by the government when you transact on exchanges – 0.1% of order amount in case of equity delivery

– 0.025% of order amount in case of equity intraday
GST Goods and Services Tax 18% applied on charges wherever applicable

Investors who are new to this trading journey must understand the basic terms, financial markets, charts, and watch price actions. Take your first step by opening a free Demat account and start developing knowledge on the stock market. In the beginning, it is safer to start with less volatile stocks as a big capital loss may bring your confidence down. Investors just need to take care of all the above mentioned points and can easily get started. The stock market has the great potential to get you enormous profit and several opportunities to create wealth.