How to Trade in Equity Market for Beginners

Trading in the equity market can be intimidating, especially for beginners. To start, you'll need to open a trading account with a reputable brokerage firm.

This account will serve as your gateway to the market, allowing you to buy and sell stocks. You can choose from various types of accounts, such as a cash account or a margin account.

As a beginner, it's essential to understand the different types of orders you can place, including market orders, limit orders, and stop-loss orders. These orders will help you execute trades efficiently and minimize losses.

Researching and understanding the company's financial health, products, and management team is crucial before making an investment decision.

To get started with trading in the equity market, you'll need to open a demat account. This digital repository will hold your stocks and enable seamless trading. You can open a demat account by filling an online account opening form with the broker, which can be completed in less than 15 minutes.

To open a demat and trading account, you'll need to provide basic details such as your name, email ID, PAN number, date of birth, and address. You'll also need to upload documents related to your proof of identity and proof of address.

Once you've opened your demat and trading account, you can log in to your account and explore the trading platform. You can add money from your bank account to your trading account, and even download a mobile trading app for a seamless trading experience.

Before choosing a brokerage partner, make sure they handle high volumes efficiently and provide timely information. You should also examine their brokerage costs, including flat fees or a percentage of trading volume, to make an informed decision.

Here are the steps to follow to open a trading account online:

Remember to declare all profits from online trading for taxation purposes.

Stock prices move as per demand and supply, economic reports, fundamental factors like company profitability and trader sentiment.

Demand and supply trends influence a company’s financial performance, and can vary based on demographics, such as during the Covid-19 pandemic lockdowns when new investors entered the market and drove up demand for certain stocks.

Institutional demand and ownership can also affect prices, for example, when a big institutional investor is selling off a stock.

Sentiment among market participants has a strong influence on share prices, and can cause stocks to trade far higher or lower than a company’s fundamentals would suggest.

Studying the fundamental and technical analysis of the stock is essential to plan your trading, including evaluating security by measuring its intrinsic value and considering various dynamics, such as earnings and expenses.

A stock's past price and volume chart can also be used to predict its future potential through technical analysis.

A GTC order, or 'Good til cancelled' order, remains open in the market until you decide to cancel it. This gives you priority in the order queue, which can be beneficial.

This type of order exposes you to significant price swings, especially due to overnight international news and market moves. The risk is higher during times of greater market volatility, such as COVID-19.

You could experience a loss with a GTC order, so it's essential to keep an eye on the market and be prepared to cancel the order if necessary.

Supply and demand trends play a huge role in a company's financial performance. If there's more or less demand for its products and services, or if supply volumes change, it can significantly impact the company's stock price.

Demand for a company's stock can vary based on demographics, and unexpected events like the Covid-19 pandemic lockdowns can drive up demand for certain stocks, which have become known as meme stocks.

Institutional demand and ownership can also affect prices, for example, when a big institutional investor is selling off a stock, or when a stock has been added to an exchange-traded fund (ETF).

Changes in supply and demand can be influenced by various factors, including new investors entering the market, which happened during the pandemic lockdowns, and institutional investors buying or selling stocks.

Politics can have a significant impact on stock markets, causing share prices to fluctuate in response to government policies and events.

Companies affected by policies on international trade, such as those involved in the US-China trade war, can see their share prices react strongly to import tariffs and other trade restrictions.

The US-China trade war, which involved imposing import tariffs on each other, is a prime example of how politics can influence stock markets.

Technical analysis evaluates the stock based on its past price and volume chart to predict future potential. This involves looking at historical trends and patterns to make informed investment decisions.

Fundamental analysis is not the only way to evaluate a stock, technical analysis is a valuable tool in its own right. By analyzing charts and indicators, traders can gain a better understanding of the stock's past performance.

Technical analysis focuses on analysing historical price movements and market trends using charts and indicators. This can help traders identify potential buying and selling opportunities.

Understanding technical analysis can be a game-changer for traders, helping them make more informed decisions and potentially increase their profits.

Trading stock CFDs offers several advantages, including the ability to speculate on share prices in both rising and falling markets due to the option to short-sell CFD products.

CFDs can be used to hedge against existing portfolio holdings, allowing you to offset potential losses against capital gains.

Trading CFDs on margin means you only need to put down a fraction of the trade's value, borrowing the rest from your broker.

This increased accessibility comes with a risk, as leverage can amplify both profits and losses.

It's essential to understand how leverage works before trading, as it can magnify losses if the stock price moves against your position.

By trading stock CFDs, you don't buy the underlying asset itself, only speculating on the rise or fall of the stock price.

CFD trading is similar to traditional trading in terms of strategies, but it's short-term in nature due to overnight charges.

Bids and Asks are crucial terms to understand in the market. A bid price is the maximum price you are willing to pay to buy a stock.

The ask price is just the opposite - it represents the minimum price at which the seller is willing to sell the stock. To ensure a profitable trade, it is essential to decide on the correct bid and ask price.

Understanding bids and asks helps in comprehending market dynamics and executing trades effectively. This knowledge will help you make informed decisions when buying or selling shares.

Share buy-backs can be a convenient way to sell your shares without paying a brokerage fee.

A company may offer to buy back its shares for various reasons, such as to distribute money back to shareholders or reduce administrative costs.

If you receive a buy-back offer, consider why the company wants to buy back its shares. You might be wondering if it's a good time to sell, and the answer depends on your confidence in the company's prospects.

If you're happy with the company's prospects, you may prefer to keep your shares. But if you'd rather sell, a buy-back offer can be a hassle-free way to do so.

Here are some key things to consider when evaluating a buy-back offer:

* Why does the company want to buy back its shares?Is now a good time to sell?

Crowd-sourced funding is a unique way to invest in companies, and it's essential to understand the basics before diving in. You can invest up to $10,000 per year in a company in exchange for shares.

To get started, you need to understand the risk warning. This means declaring that you've read and understood the risk warning on the company website and offer document. It's crucial to be aware of the potential risks involved.

Make sure the CSF website operator has an AFS licence on ASIC's Professional Registers Search. Look at 'licence authorisation conditions' to ensure they can provide CSF services.

If you're not sure about an investment, there's a cooling-off period to help you make up your mind. You have five business days to cancel your application and get a full refund if you decide it's not for you.

There are many different stock trading strategies you can use depending on your preferred approach to the market and how long you want to keep positions open.

You can identify price trends and trade in line with the direction of a trend using technical analysis tools, which is a key part of trend trading strategy.

Trend traders need to have well-defined systems to identify and follow price trends and respond quickly when trends change.

Position trading is a strategy that involves holding positions open for months or years to speculate on long-term price trends. This approach places more emphasis on analysis of a stock's fundamentals rather than technical analysis.

You can use a limit order to buy or sell shares at a specific price, or better, which is ideal for position trading. A limit order may not execute, but it can be placed for the day, or left open until cancelled or expired.

Position traders need to be patient and willing to hold onto their positions for an extended period. This strategy requires a thorough analysis of a stock's fundamentals, including its financial health and market position.

You can view the live market prices of shares in your trading account and select a share to view its in-depth detail, historical prices, charts, etc. This will help you make informed decisions about your position trading strategy.

To minimize risks, position traders can use trailing stop-loss orders to reduce the impact of trend reversals. This will help you lock in profits and limit losses as the trend changes.

A Good Till Day (GTD) order is a type of order that stays open in the market until it is executed or the end of the trading day, whichever comes first.

It's a great option if you're worried about overnight price swings and unexpected losses.

The unexecuted portion of the order is cancelled at the end of the trading day, so you don't have to worry about it lingering on the market.

If your order doesn't execute, you can simply put it back on the market the next trading day.

Your order will get a new place in the queue, according to price-time priority, so be prepared for that.

CFD trading allows you to speculate on share price movements without owning the underlying stock.

Using margin in CFD trading can potentially maximise your funds into larger positions.

CFDs are leveraged products, which means both profits and losses can be magnified.

You can use CFDs to take positions on stock prices without owning the actual shares.

CFD trading carries risk, even when buying shares without leverage.

Swing trading aims to take advantage of share price swings by buying stocks before they swing higher and selling them before they swing lower.

Swing traders use technical analysis indicators to provide buy and sell signals based on when a price trend is likely to change direction.

You can view the live market prices of shares in your trading account to get started with online trading in India, which is the first step to implementing a swing trading strategy.

Swing trading requires more monitoring of price charts and an understanding of momentum indicators.

You can select a share and view its in-depth detail, historical prices, charts, etc. to make informed decisions about buying and selling shares as part of a swing trading strategy.

Swing traders need to be prepared to adjust their strategy as market conditions change, which is why it's essential to keep an eye on live market prices.

Day trading involves opening and closing positions on the same day to take advantage of stock price fluctuations during a trading session.

This strategy allows traders to avoid overnight price swings and unexpected losses, as they close all their positions before the end of the day.

Day traders often open more than one position during a session, but close them before the end of the day so that they have none open overnight.

You can put a 'Good for day' (GFD) order on the market for one trading day, and the unexecuted portion of the order, if any, is cancelled at the end of the day.

This means your order will get a new place in the queue according to price-time priority, so you can try again the next trading day if your order didn't execute.

By focusing on day trading, you can avoid exposure to after-hours trading volatility and take advantage of the price fluctuations during the trading session.

Risk Management is crucial in the equity market, and it starts with understanding how to use risk-management tools like limit-orders, take-profit orders and stop losses to enter and exit positions. These tools help you lock in potential profits and avoid further losses.

You should diversify your portfolio to avoid the risk of losing a large part of your money if a particular stock falls. This means no single position should account for a large portion of your overall portfolio.

Setting a stop-loss order is essential, it allows you to set a predetermined price at which your shares will be automatically sold, helping to limit potential losses.

Risk management is crucial in stock trading, and it starts with understanding how to use risk-management tools.

Limit-orders, take-profit orders, and stop losses are essential tools to enter positions at a desired price, sell them at a certain level, or avoid further losses.

Diversifying your portfolio is also key to avoiding significant losses, as it prevents any single position from dominating your investments.

A stop-loss order allows you to set a predetermined price at which your shares will be automatically sold, helping to limit potential losses.

Keeping a trading diary can help you learn from your successes and failures, making you a better trader in the future.

You should always set a stop-loss price to prevent a heavy loss while executing a trade.

Market volatility can be a challenge even for experienced investors. Market volatility and trading halts can be triggered by events like COVID-19.

During times of high market volatility, share prices can change dramatically. It's hard to time the market, so it's essential to stop and think before you trade.

Paying too much in transaction costs can be a significant issue if you buy or sell too frequently. Transaction costs may not be worth it.

Trading halts can be placed on shares to allow the market to digest new information about a company. Prices could fall and volatility may increase.

You may not be able to sell your shares when you want, or at a price you like.

You can invest in shares, which makes you a part-owner of a company, and get dividends and other benefits. You can also pool your money with others through a managed fund or a listed investment company (LIC).

A LIC uses money from investors to invest in a range of companies and other assets, paying dividends from earnings. LICs generally have lower ongoing fees than managed funds.

Here are some common types of stocks:

Investors aim to buy the underlying outright at a favourable price.

They make profits from owning the asset, and then selling it at a higher price. This is usually done over the long term, with the hope that the market price rises so that they can profit through difference in price.

Investors can earn income in the form of dividends if the company grants them.

They'll also have shareholder voting rights if they're eligible.

Full Service Brokers offer a hands-on approach to investing, where they do the trading for you and can provide advice on what to buy or sell.

They must have a reasonable basis for their recommendations and disclose any interest they have in the investment.

Fees for their services are typically a percentage of the trade value, with larger transactions often resulting in lower fees.

For example, a trade of up to $5,000 may incur a fee of 2.5%, while a larger trade might be as low as 0.1%.

Small trades can be relatively expensive due to the minimum fee charged by most brokers.

Managed funds are a convenient way to buy shares, as a professional fund manager makes the buy and sell decisions on your behalf.

You can pool your money with other investors by buying fund 'units', which helps to diversify and reduce risk.

Managed funds may have higher fees than other indirect investments, depending on the type of fund you choose.

You can own shares yourself, or invest in a managed fund as a collective investment, which is a great option if you're new to shares.

A CHESS Depositary Interest (CDI) allows shares of a foreign company to be traded on Australian markets, such as the ASX.

You get the financial benefit of investing in a foreign company when you buy a CDI.

The product title is held by a depositary nominee company on your behalf, but you get the same benefits as other shareholders, such as dividends or participation in share offers.

You usually cannot vote at company meetings, but can direct the depositary nominee to vote on your behalf.

To find out more, you can check out the ASX publication Understanding CHESS Depositary Interests.

Companies may offer new shares to the market as a way of raising capital, known as a 'float' or an 'initial public offering' (IPO).

This is a popular way for companies to raise funds, and it can be a significant milestone in a company's growth.

In an IPO, a company issues new shares to the public for the first time, making them available for anyone to buy.

This can help companies expand their operations, pay off debts, or invest in new projects.