You cannot buy or sell directly on the stock market. For this, you have to go through brokers who are authorised to trade on the market or stock brokerage companies that allow you to trade using their platform. The process is simple:

• To begin investing, you have to open a trading account with a broker or a stock brokerage platform. A trading account is where you actually “trade” or place buy or sell orders.
• The broker or the stock brokerage platform opens a demat account for you. A demat account holds the financial securities in your name.
• These two accounts are then linked to your bank account.
• To open a trading and demat account, you need to provide Know Your Customer (KYC) documentation that includes verification via government-authorized identity cards such as the PAN card or your Aadhar.
• Most brokers and brokerage platforms now have an online KYC process that allows you to open an account in a couple of days by submitting your verification details digitally.
• Once open, you can trade with your broker or brokerage company online via a portal or offline via phone calls.

There are a few types of charges that you will usually pay:

• Transaction costs: All brokers are paid a brokerage, which is a fee they take to facilitate a trade for you. With the advent of discount brokers, these costs are quickly shrinking. Apart from brokerage, they also collect taxes and dues paid to the government on each transaction, such as the Securities Transaction Tax (STT), SEBI charges, Goods and Services Tax (GST), among others.
• Demat charges: While your broker or brokerage platform opens your demat account for you, they do not operate it. Demat accounts are operated by central securities depositories such as NSDL or CDSL, under the government’s jurisdiction to safeguard your interest. You are expected to pay nominal annual charges (typically collected by your broker or the brokerage platform) to maintain your account. These charges range anywhere between INR 100 to INR 750.
• Taxes: You pay a percentage of your profit from your investments to the government as taxes. For stocks, if you hold them for longer than a year, you pay long-term capital gains tax, which is 10%, and if you hold for less than a year, you pay short-term capital gains tax, which is 15%. Both of these tax rates change based on cess or surcharge charged by the government.

The key financial instruments traded on the stock market are:

• Equity shares: Issued by companies, equity shares entitle you to receive a claim to any profits paid by the company in the form of dividends.
• Bonds: Issued by companies and governments, bonds represent loans made by the investor to the issuer. These are issued at a fixed interest rate for a fixed tenure. Hence, they are also known as debt instruments or fixed income instruments.
• Mutual Funds (MFs): Issued and operated by financial institutions, MFs are vehicles to pool money which is then invested in different financial instruments. Profit from the investments is distributed between the investors in proportion to the number of units or investments they hold. These are called “actively” managed products where a fund manager takes calls on what to buy and sell on your behalf to generate better returns than the benchmark (like the NIFTY).
• Exchange Traded Funds (ETFs): Increasingly gaining popularity, ETFs essentially track an index like the NIFTY or the SENSEX. Once you buy a unit of the ETF, you hold a part of the 50 stocks in the NIFTY in the same weightage that the NIFTY holds them. These are called “passive” products, which are typically much lower in cost than MFs and give you the same risk or return profile as the index.
• Derivatives: A derivative derives its value from the performance of an underlying asset or asset class. These derivatives can be commodities, currencies, stocks, bonds, market indices and interest rates.

When researching stocks or MFs, you will come across the term “market cap”. Market cap or market capitalization is the value of 100% of the company. Put simply, if say a company’s market cap is INR 10,000 crore, it means that is how much money it would cost you to buy all the shares of the company.

Based on the market capitalization, three types of stocks categorisation exists. It is important to know this because many mutual funds and ETFs are classified based on the market caps they focus on.

• Large cap stocks: SEBI defines large caps as the top 100 stocks by market cap. These companies are some of the largest in the country by revenue, are well-established and are usually market leaders in their respective industries. These are seen as least risky but may not grow as fast as mid or small cap stocks. But they may offer higher dividends and a safe capital reserve in the long term.
• Mid cap stocks: SEBI defines mid caps as stocks ranked top 101-250 by market cap. This usually implies companies with a market cap in a range between INR 8,000 to INR 25,000 crore. These companies are smaller than large caps, capable of higher growth and the potential to disrupt a large company or grow into large cap company. They are considered riskier than large caps but less risky compared to small caps.
• Small cap stocks: All stocks ranked top 251 and below by market cap are considered small caps by SEBI. These are stocks from small companies and are often highly volatile. Compared to the other two, these are seen as quite risky but have the potential for higher returns. Small caps are also less “liquid”, which means that there aren’t as many buyers and sellers for these stocks as for large caps.

Apart from market cap, stocks are categorized by the industry, how much dividend they pay, how quickly they are growing, among others.

• Decide your risk appetiteRisk appetite is the amount of risk that you can withstand. Several factors influencing risk appetite include the timeline of investment, age, goal and capital. Another key variable to keep in mind is your current liabilities. For example, if you are the sole earning member of your family then you will be less inclined to take risks. Here, maybe you’ll have more debt, large cap stocks, in your portfolio.On the other hand, if you are younger, with no dependents, you may have a high risk appetite. This may allow you higher exposure to equities vs. debt. Even within equities, you may be able to invest in more small caps, which are higher risk stocks. The starting point is to make a choice keeping in mind that risk and reward go hand in hand.

• Invest regularlyNow that you have a demat account, you need to allocate funds for regular investment. Set a personal budget, track your expenses, and see how much you can set aside. The best way to invest in the market is to use a Systematic Investment Plan (SIP). A SIP is investing the same amount of money every month in, say, a mutual fund. This allows you to average the different market levels you come in at, maintain good investing habits and slowly increase your investments as you gain confidence.

• Build a diverse portfolioThe basic rule for building any portfolio is to invest in a diverse range of assets. This is because it minimizes the impact if a certain asset performs badly. Diversification extends within the asset class, industry, and cycles. It may be tempting to park all your money in an industry that is in an upward swing. But it is always better to distribute between industries, balancing market cap exposure, and offset the risk of equity shares with stable, but lower return bonds. Finally, use SIPs to make sure you have invested in securities across different market cycles.

• Rebalance your portfolioAs your priorities change with time, your portfolio must also change to reflect this. You must rebalance your portfolio every couple of quarters to make sure you are not over or underexposed to any one stock or asset class. This is also necessary as you grow older and your priorities change. For instance, you may want to lower your risks when you start a family or when you are nearing retirement age.

You are now ready to put your money into the best wealth generator: the stock market. The question here is how to invest in the stock market for beginners? How to invest money in the stock market for beginners can be confusing at best. Investing requires you to set aside money while you are busy with life and have that money work for you so you can reap the rewards of your labor in the future.

Let’s assume you have set aside $10,000, and you’re ready to enter the investment world. So, what happens next? The decision to hire a financial advisor or to simply do the research on your own to pick the best stocks to buy is entirely up to your own free will. Investing in the stock market might be easier than many would’ve thought as all you need is an online brokerage account to get started. There are, however, a set of questions you need to ask yourself before embarking on the investing journey.

• What kind of Investor are you?
• Which online brokerage account would be best for your goals?
• How much money are you setting aside for stock investing?
• Are you planning to invest in stocks, mutual funds, or ETFs?
• Short-term or long-term investing?
• How are you planning to manage your portfolio?

As economists like to say, there ain’t no such thing as a free lunch. Though many brokers have been racing recently to lower or eliminate commissions on trades, and ETFs offer index investing to everyone who can trade with a bare-bones brokerage account, all brokers have to make money from their customers one way or another.

In most cases, your broker will charge a commission every time you trade stock, either through buying or selling. Trading fees range from the low end of $2 per trade but can be as high as $10 for some discount brokers. Some brokers charge no trade commissions at all, but they make up for it in other ways. There are no charitable organizations running brokerage services.

Depending on how often you trade, these fees can add up and affect your profitability. Investing in stocks can be very costly if you hop into and out of positions frequently, especially with a small amount of money available to invest.

Remember, a trade is an order to purchase or sell shares in one company. If you want to purchase five different stocks at the same time, this is seen as five separate trades, and you will be charged for each one.

Now, imagine that you decide to buy the stocks of those five companies with your $1,000. To do this, you will incur $50 in trading costs—assuming the fee is $10—which is equivalent to 5% of your $1,000. If you were to fully invest the $1,000, your account would be reduced to $950 after trading costs. This represents a 5% loss before your investments even have a chance to earn.

Should you sell these five stocks, you would once again incur the costs of the trades, which would be another $50. To make the round trip (buying and selling) on these five stocks would cost you $100, or 10% of your initial deposit amount of $1,000. If your investments do not earn enough to cover this, you have lost money just by entering and exiting positions.

Diversification is considered to be the only free lunch in investing. In a nutshell, by investing in a range of assets, you reduce the risk of one investment’s performance severely hurting the return of your overall investment. You could think of it as financial jargon for “Don’t put all of your eggs in one basket.”

In terms of diversification, the greatest amount of difficulty in doing this will come from investments in stocks. As mentioned earlier, the costs of investing in a large number of stocks could be detrimental to the portfolio. With a $1,000 deposit, it is nearly impossible to have a well-diversified portfolio, so be aware that you may need to invest in one or two companies (at the most) in the first place. This will increase your risk.

This is where the major benefit of mutual funds or ETFs comes into focus. Both types of securities tend to have a large number of stocks and other investments within their funds, which makes them more diversified than a single stock.

The foreign exchange market is where currencies are traded. Currencies are important because they allow us to purchase goods and services locally and across borders. International currencies need to be exchanged to conduct foreign trade and business.

Trading forex is similar to equity trading. Here are some steps to get yourself started on the forex trading journey.

1.    Learn about forex: While it is not complicated, forex trading is a project of its own and requires specialized knowledge. For example, the leverage ratio for forex trades is higher than for equities, and the drivers for currency price movement are different from those for equity markets. There are several online courses available for beginners that teach the ins and outs of forex trading.

2.    Set up a brokerage account: You will need a forex trading account at a brokerage to get started with forex trading. Forex brokers do not charge commissions. Instead, they make money through spreads (also known as pips) between the buying and selling prices.

For beginner traders, it is a good idea to set up a micro forex trading account with low capital requirements. Such accounts have variable trading limits and allow brokers to limit their trades to amounts as low as 1,000 units of a currency. For context, a standard account lot is equal to 100,000 currency units. A micro forex account will help you become more comfortable with forex trading and determine your trading style.

3.    Develop a trading strategy: While it is not always possible to predict and time market movement, having a trading strategy will help you set broad guidelines and a road map for trading. A good trading strategy is based on the reality of your situation and finances. It takes into account the amount of cash that you are willing to put up for trading and, correspondingly, the amount of risk that you can tolerate without getting burned out of your position. Remember, forex trading is mostly a high-leverage environment. But it also offers more rewards to those who are willing to take the risk.

4.    Always be on top of your numbers: Once you begin trading, always check your positions at the end of the day. Most trading software already provides a daily accounting of trades. Make sure that you do not have any pending positions to be filled out and that you have sufficient cash in your account to make future trades.

5.    Cultivate emotional equilibrium: Beginner forex trading is fraught with emotional roller coasters and unanswered questions. Should you have held onto your position a bit longer for more profits? How did you miss that report about low gross domestic product (GDP) numbers that led to a decline in overall value for your portfolio? Obsessing over such unanswered questions can lead you down a path of confusion. That is why it is important to not get carried away by your trading positions and cultivate emotional equilibrium across profits and losses. Be disciplined about closing out your positions when necessary.

The best way to get started on the forex journey is to learn its language. Here are a few terms to get you started:

• Forex account: A forex account is used to make currency trades. Depending on the lot size, there can be three types of forex accounts:

1. Micro forex accounts: Accounts that allow you to trade up to $1,000 worth of currencies in one lot.
2. Mini forex accounts: Accounts that allow you to trade up to $10,000 worth of currencies in one lot.
3. Standard forex accounts: Accounts that allow you to trade up to $100,000 worth of currencies in one lot.

• Ask: An ask (or offer) is the lowest price at which you are willing to buy a currency. For example, if you place an ask price of $1.3891 for GBP, then the figure mentioned is the lowest that you are willing to pay for a pound in USD. The ask price is generally greater than the bid price.
• Bid: A bid is the price at which you are willing to sell a currency. A market maker in a given currency is responsible for continuously putting out bids in response to buyer queries. While they are generally lower than ask prices, in instances when demand is great, bid prices can be higher than ask prices.
• Bear market: A bear market is one in which prices decline among currencies. Bear markets signify a market downtrend and are the result of depressing economic fundamentals or catastrophic events, such as a financial crisis or a natural disaster.
• Bull market: A bull market is one in which prices increase for all currencies. Bull markets signify a market uptrend and are the result of optimistic news about the global economy.
• Contract for difference: A contract for difference (CFD) is a derivative that enables traders to speculate on price movements for currencies without actually owning the underlying asset. A trader betting that the price of a currency pair will increase will buy CFDs for that pair, while those who believe its price will decline will sell CFDs relating to that currency pair. The use of leverage in forex trading means that a CFD trade gone awry can lead to heavy losses.
• Leverage: Leverage is the use of borrowed capital to multiply returns. The forex market is characterized by high leverages, and traders often use these leverages to boost their positions.
• Example: A trader might put up just $1,000 of their own capital and borrow $9,000 from their broker to bet against the EUR in a trade against the JPY. Since they have used very little of their own capital, the trader stands to make significant profits if the trade goes in the correct direction. The flipside to a high-leverage environment is that downside risks are enhanced and can result in significant losses. In the example above, the trader’s losses will multiply if the trade goes in the opposite direction.
• Lot size: Currencies are traded in standard sizes known as lots. There are four common lot sizes: standard, mini, micro, and nano. Standard lot sizes consist of 100,000 units of the currency. Mini lot sizes consist of 10,000 units, and micro lot sizes consist of 1,000 units of the currency. Some brokers also offer nano lot sizes of currencies, worth 100 units of the currency, to traders. The choice of a lot size has a significant effect on the overall trade’s profits or losses. The bigger the lot size, the higher the profits (or losses), and vice versa.
• Margin: Margin is the money set aside in an account for a currency trade. Margin money helps assure the broker that the trader will remain solvent and be able to meet monetary obligations, even if the trade does not go their way. The amount of margin depends on the trader and customer balance over a period of time. Margin is used in tandem with leverage (defined above) for trades in forex markets.
• Pip: A pip is a “percentage in point” or “price interest point.” It is the minimum price move, equal to four decimal points, made in currency markets. One pip is equal to 0.0001. One hundred pips are equal to 1 cent, and 10,000 pips are equal to $1. The pip value can change depending on the standard lot size offered by a broker. In a standard lot of $100,000, each pip will have a value of $10. Because currency markets use significant leverage for trades, small price moves—defined in pips—can have an outsized effect on the trade.
• Spread: A spread is the difference between the bid (sell) price and ask (buy) price for a currency. Forex traders do not charge commissions; they make money through spreads. The size of the spread is influenced by many factors. Some of them are the size of your trade, demand for the currency, and its volatility.
• Sniping and hunting: Sniping and hunting is purchase and sale of currencies near predetermined points to maximize profits. Brokers indulge in this practice, and the only way to catch them is to network with fellow traders and observe for patterns of such activity.

• The most basic forms of forex trades are a long trade and a short trade. In a long trade, the trader is betting that the currency price will increase in the future and they can profit from it. A short trade consists of a bet that the currency pair’s price will decrease in the future. Traders can also use trading strategies based on technical analysis, such as breakout and moving average, to fine-tune their approach to trading.

  Depending on the duration and numbers for trading, trading strategies can be categorized into four further types:

  • A scalp trade consists of positions held for seconds or minutes at most, and the profit amounts are restricted in terms of the number of pips. Such trades are supposed to be cumulative, meaning that small profits made in each individual trade add up to a tidy amount at the end of a day or time period. They rely on the predictability of price swings and cannot handle much volatility. Therefore, traders tend to restrict such trades to the most liquid pairs and at the busiest times of trading during the day.
  • Day trades are short-term trades in which positions are held and liquidated in the same day. The duration of a day trade can be hours or minutes. Day traders require technical analysis skills and knowledge of important technical indicators to maximize their profit gains. Just like scalp trades, day trades rely on incremental gains throughout the day for trading.
  • In a swing trade, the trader holds the position for a period longer than a day; i.e., they may hold the position for days or weeks. Swing trades can be useful during major announcements by governments or times of economic tumult. Since they have a longer time line, swing trades do not require constant monitoring of the markets throughout the day. In addition to technical analysis, swing traders should be able to gauge economic and political developments and their impact on currency movement.
  • In a position trade, the trader holds the currency for a long period of time, lasting for as long as months or even years. This type of trade requires more fundamental analysis skills because it provides a reasoned basis for the trade.

Pros

• Forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. This makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.
• The forex market is traded 24 hours a day, five and a half days a week—starting each day in Australia and ending in New York. The broad time horizon and coverage offer traders several opportunities to make profits or cover losses. The major forex market centers are Frankfurt, Hong Kong, London, New York, Paris, Singapore, Sydney, Tokyo, and Zurich.
• The extensive use of leverage in forex trading means that you can start with little capital and multiply your profits.Automation of forex markets lends itself well to rapid execution of trading strategies.
• Forex trading generally follows the same rules as regular trading and requires much less initial capital; therefore, it is easier to start trading forex compared to stocks.
• The forex market is more decentralized than traditional stock or bond markets. There is no centralized exchange that dominates currency trade operations, and the potential for manipulation—through insider information about a company or stock—is lower.

Cons

• Even though they are the most liquid markets in the world, forex trades are much more volatile than regular markets.
• Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.
• Banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account.
• Trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their interconnectedness to grasp the fundamentals that drive currency values.
• The decentralized nature of forex markets means that it is less accountable to regulation than other financial markets. The extent and nature of regulation in forex markets depend on the jurisdiction of trading.
• Forex markets lack instruments that provide regular income, such as regular dividend payments, that might make them attractive to investors who are not interested in exponential returns.