The stock market is an ocean full of opportunities. Traders and Investors make hefty money by riding as per the wave. Continuing with the analogy of “A rising tide lifts all boats”, one should know when the tide is high and when it might go low exposing our weak investments. It means when the market is going up all the stock prices rise along with the market. The price of the stocks goes up, because of the market cycle and investors’ psychology, of jumping on the trend.
However, the tide does not always rise. Accordingly, you have to manage and hedge the risk associated with the downside of the market. Many factors drive the stock market. Along with the factors, there are many different parties involved in the Indian stock market. We will discuss all these points, but first, let us understand the requirements of investing in the stock market.
To begin investing in the Indian stock markets you will require these three accounts: Demat, Trading, and a Bank Account.
Demat account is used to store financial instruments in electronic format. Moreover, you can store all sorts of financial instruments such as equity shares, bonds, government securities, currencies, and more in a single demat account.
Opening a trading account helps you in buying and selling securities. It makes the procedure of buying and selling easy in the stock market. Adding to the point, this platform shows the real-time price movement of shares and other financial instruments. Thus, it makes day-trading easy for traders.
To transfer funds into a trading account, you need to have a bank account. It is next to impossible for an individual above the age of 18 to open a trading and demat account, without having a bank account. However, a minor demat account can be opened even if he/she does not have a bank account.
To ensure smooth transactions, you should link all three accounts together.
To open a demat and trading account you will be required to keep following documents handy:
- Address Proof: these documents can be used as proof of address: Ration card, Aadhaar Card, Electricity bill (in the name of the account holder), and gas bill.
- Identity Proof: Documents that can be used as proof of identity are: PAN card, Aadhaar Card, Driving Licence, and Voter’s Id card.
- Income Proof: Salary slips and ITR can be used as income proof. You should know that proof of income is required only in the case of derivatives trading.
- Lastly, a canceled cheque or a bank statement can be used as valid proof for a bank account.
To open these accounts, you do not have to go anywhere. You simply have to contact a broker, and the process will be completed online. This answers the most frequently asked question, which is, “how to start online trading?”
Participants of the Indian stock market
- Stock Exchanges
- Primary Dealers
There are more participants in Indian financial system, but these are the major participants and have major involvement in the stock market.
There are many other factors such as investor sentiments, political environment, current events, and more, that affect the stock market but to understand the basics of the stock market, you need to understand the basics of demand and supply. Keeping other factors aside, the major factor that drives stock market or stock price is demand and supply.
Let us understand this with the help of an example. Suppose, there is a shortage of onions in the market due to the rainy season. However, the demand for the commodity is intact, it may increase as well. Thus, the prices of that commodity will shoot up due to high demand and low supply. Similarly, when a company is doing good, everyone lines up to buy shares of that company, and the share price goes up. On the other hand, when the demand falls, share price also falls.
Therefore, always do your due diligence and invest in companies that will never run out of demand. Hope you have a successful investment journey!