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Trading in Indian stock markets.
Preface:
Stock trading is the most discussed term these days on the streets in India, next only to hot climate. Especially so after the dream bull run which started in first half of this decade. The bull run has not ceased yet and many still believe that there is more steam left. I will try to list the necessary steps to start stock trading in Indian stock market. Stock exchanges:
The Indian stock market is controlled by the watch-dog SEBI (Securities and Exchange Board of India), regulating the activities of stock exchanges and is very stingy these days especially after the Harshad Mehta fiasco. Until a decade back, there were stock exchanges in almost all major cities of India. They have waned into oblivion after the advent of online stock trading. Now BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) locks horn to get the major pie, and they vie for the top two places. BSE is the oldest stock-exchane in India. NSE is a new entity in the exchange space. But since it allows BTST, I prefer to trade personally in NSE.
Broker
Choose your broker wisely. Your choice might make or mar your trading stint. Quite a few options are available to choose from - Sharekhan, HDFC, SBI, reliancemoney, ICICIdirect, 5paisa to name a few. If you are a heavy volume and frequent trader, ICICIdirect might prove to be costly. Also their web based trading terminal is not suited for real-time trading. Demat and savings account:
The first prerequisite to trading online is to get a PAN-card (Permanent Account Number card). With this card you will be able to get what is called a demat (dematerialised) account. This is in addition to a saving account, preferably with the same broker as the demat account. Imagine a demat account as a place to store your shares in dematerialised form just as you would do with money in savings bank. Getting these things ready until you make your first trading takes quite a while (45 days) - so learn to be patient. Trading:
Once you have your demat account set-up, log into it and you will be able to buy and sell in equities. Generally an equity once bought can be sold in T+2 days (is the third day after buying). This is called delivery buying. You can also do BTST (buy today and sell tomorrow) for a few listed securities. Analysis:
You will in the meantime have to learn chart-reading, fundamental analysis, technical analysis as also the stock market terminologies. It will be a good idea to join forums like moneycontrol and traderji where plethora of information is available to dispense with. Caution:
1) Do not go for derivative, futures and options trading in the initial stages until you know them well. For that matter, keep away from anything that allows margin. They are known forms of depleting your working capital.
2) Indian markets now allow short selling which means you can sell a security without having it in your demat account. Be careful if you are using this in the bull market.
3) Use only money which you can afford to lose. Dont borrow money to trade in stocks.
4) Dont buy/sell on stock tips. Do your home work properly and take responsibility for all your decisions.
5) Remember, trading is a way to invest. If you turn greedy and do listless trading in a bull market, a short bear-run can wipe most of your capital or gains. Bear markets are ruthless and very frustrating. You will need lots of guts and patience to swim against the tide.
6) Have a plan - always - even if it is wrong. Have a reason while buying and have a reason to sell.
Tail-piece:
Stock trading is not a get-rich-quick technique. Its a great way to invest and treat it that way. Stock market has taught me a lot of philosophies. It can be directly related to real life on many instances. Best of them is:
"What goes up must come down and what comes down has to go up".
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Contributor's Note
The article is a newbie's guide for trading in Indian stock markets. I have just 18 months of experience with this monster :)
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The copyright for this content entitled "Trading in Indian stock markets." has been specified by the contributor as:
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This content may not be copied, distributed or adapted by anyone under any circumstances.
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This intel was contributed by munnakv
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May, 2012
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