Stock market is a place where many people are made rich everyday and many lose their capital. If we carefully examine the number of gainers we will see that the number is quite less as compared to the people who make money. So, how can you be successful in trading? How do you make long term capital for yourself? These are some of the basic questions that pop up in your head when you think about investing in the stock market.
There are two ways of investing in the stock market:
Long term investment: This is the best way to invest in the capital market. This method includes identifying the right stocks for your which will grow your capital gradually over the number of years you have in mind. You can do your research yourself or with the help of your known ones to identify such stocks.
People generally have a time frame in mind in which they think their capital will grow to the desired extent. When stock moves up to your expectations; you book profits. This is how you make a long term investment. It might sound easy; however, there are a lot of things involved in it which you will learn eventually.
Short term investment: It is a type of investment in which you put your money for a less amount of time and take benefits of the share price movement. Short term investments may range from 1 day to less than a year. There is another concept in short term investing which is known as intraday trade. This is the type of trade which attracts most people as the amount of returns is huge and there is a lot of scope for growing your capital.
Intraday trade is one of the most risky forms of investing money in the stock market. In intraday trading all stocks purchased for intraday trade are to be sold the same day and cannot be carried forward. So if you think that Stock X will move up during the day, you can place a buy order but if it goes down you still need to sell it before the end of the day unless you convert it as a delivery.
The only benefit that attracts traders towards intraday trade is the margin that they get on buying stocks. If you have Rs. 1000/- in your account and you want to buy stock X whose value is Rs. 100/-; within an intraday trade you can approximately buy 100 shares of stock X. This means that your stock broker gives you 10 times margin for intraday trade.
It might sound really amazing to know that you trade for the amount that you don’t even have and make ten times the profit that you could have otherwise made with the money you have; however this is true in case of losses. You can even lose ten times the money meaning that you can virtually end up losing all your capital in a single trade if the stock goes down drastically.
How to start investing?
In order to start investing all you need is a demat a/c. Stock brokers facilitate the opening of these accounts and help you trade in the stock market using their platform in lieu of brokerage. Brokerage is the charge that you pay whenever you place a buy and a sell call from your account.