Investing in share market is not a herculean task. But, in order to make money from share investment, you need to expertise on share market mechanism. You have to master both on technical analysis and fundamental analysis. If you are new in share investing, learn about stock market basic knowledge.
Note: Remember that stock market and share market are similar term. In this article, I intentionally in many cases use share market term instead of stock market. Both share market and stock market are used in this post. So, don’t become confused.
Moreover, you have to develop controlling power on your personal greed and emotion. In this article, you are going to learn about the step by step complete guidelines for investing in share market. Saving money for stock investing is the prerequisite to start share investing.
1st Step: Make up mind to invest in share market
Before starting stock investing, you need to take investing decision. Why do you want to start invest in share market? This is the right question to decide the reason behind your investing goal. You might know from different sources that investing in stock market is a profitable business.
I agree with you. Did you hear the name of Warrant Buffet yet? He is one of the best stock investors around the world. Moreover, he is one of the richest men in the globe.
Hence, you can surely make up your mind to invest in stock market. In stock investing, you can remain passive or active. That means you may be a day trader or a passive investor. This is one of the most significant reasons to invest in share market.
To learn the best techniques about stock investing, you can read the post- how to buy stock for long term investing. Initially, you should decide whether you want to be a trader or an investor.
2nd Step: open a bank account for investing in share market
Opening a bank account is the prerequisite to create a BO (Beneficiary Ownership) account. From any listed banks whether it is public or private bank, you can open a bank account by deposit a specific amount. Your bank account will be used to deposit or withdraw money from BO Account Code.
To open a bank account, you need National ID’s Photocopy, Passport size Photos, Nominee’s NID Card’s Photocopy, Passport size photos and some other information.
3rd Step: Selecting a broker house to start share investing
Now time to search a best broker house. You can get a list of broker houses from your stock exchange’s website. Some of the broker houses have accessed to more than one exchange.
It will be a good decision if you can choose cost effective broker house. Moreover, try to selected the best broker house, which has permission to trade more than one exchange.
Your broker can legally demand a specific commission for each transaction. On average commission rate is 0.4% to 0.8% per transaction. Commission rate may vary from country to country. This commission is applicable both on buying and selling shares.
Let’s see an example how commission rate works
Suppose, a broker house’s commission is 0.4%. That means you need to pay buying commission 0.4% and selling commission is also 0.4%. Total commission rate is at least 0.85%. Commission amount to your broker will vary depending on selling price.
As commission rate and service are the main expected ingredients from broker house, you need to find out the best broker house to lessen cost and expand service.
4th Step: Open a Beneficiary Ownership (BO) Account to invest in share market
To open a BO account, you need to talk with a selected broker house and they will provide a form like open a bank account form. Documents and procedures are same like bank account opening.
Major concerns are better service and less commission. When you fill up the form and submit documents, your broker will provide you a Client Code and password. Then you can start investing in stock market.
5th Step: Study the share market
Now time to start the real game. Some may say, before opening BO account, you should start studying the market. This is a good idea. But, opening BO account before studying market indicates that you are ready to start the game. Whether you research market before BO account opening or after BO account opening, that doesn’t matter. If you want to be a good trader, you need to learn about day trading strategies, and swing trading strategies.
Learn technical and fundamental analysis to study the market. Firstly, learn about RSI indicator. Secondly learn about the application of candlestick chart. Thirdly, for risk analysis, learn Value at risk(VaR). On the contrary, learn the main fundamental indicators- EPS, P/E and Dividend.
Now take time to understand the economy, market condition and sectors wise performance. Following common factors you need to learn are: Economic factors, Market Volume, Index Trend, Monetary situation, Country’s financial condition
6th Step: make a deposit in BO to invest in share market
At the outset, you should deposit small amount of money in your BO account. You can transfer money to your BO Account through offline and online mode from your bank account by selecting other bank transfer or deposit cheque.
I suggest to use online transfer method. Initially, you should start with small amount. Gradually, increase your deposit after understanding the market properly. If you have much money, don’t need to deposit in a single day. Wait for final moment.
7th Step: Select stocks to start investing
On your research step, you need to study at least 30 to 50 company’s shares. Gradually, cut short the list and finally select 3 to 5 companies. As your initial invest amount is very low, just buy 50 to 100 shares from each companies and wait for 15 to 30 days to realize market movement. During trading our, watch the market movement.
8th Step: Holding stocks
How much time should you hold stocks? This answer depends on your nature of trading. You can hold shares until you can obtain capital gain occurs or can hold till get dividend. Most active traders wait to gain 10% to 20%.
Many like to sell when shares price increases 10% to 15%. When you see that your shares price is increasing, hold shares for some more time. Your ultimate target is profit making. Fix your target and develop your own strategy to figure out holding techniques. But, follow stop loss rule when you make trading mistakes.
9th Step: Selling or Buying decision
When will you sell shares? You should try to buy shares when price is near 52 weeks lowest. Try to sell when price reaches to 52 Weeks highest. Another criteria is selling shares considering the market condition. Learn about stock selling styles.
Moreover, you should have knowledge about how to trade trend reversal. Traders have more experience about trading in downtrend market. If you want to be an investor, read the article- how to buy stock for long term investment.
Temporarily, share price may below your buying price . Don’t worry if your confidence is enough to future prospects. So buy shares when a good share price fall more. Try to average and minimize your buying risk.
10th Step: Capital gain or dividend
Shares have both capital gain and realized gain. Suppose you buy 100 shares from Company X on 1 July 2021. Buying price at 50 dollars per share is 100*50=5000 dollars. You can hold the shares until dividend will be received. Company X has declared 20% dividend on the 1st December, 2021.
Current market price of X company’s share is 60 dollars. Your gain is 1000 dollars (100*10), and 200 dollars (100*2) at 20% dividend. Dividend is given on face value and 10 dollars is the face value of X company.
Hence, your total earning is 1200 Dollars (1000+200), which is 24% gain (1200/5000*100) on your 5000 dollars investment. When your share price was 60 dollars, your gain was 1000.
Final Talk for investing in stock market
To become successful in your share investing career, try to buy shares at discounted price and wait until achieve your target. Good shares may give you loss and this loss has no ability to grasp all of your capital.
But, bad shares may eat your whole capital. Just imagine, you buy 500 shares at 40 dollar per shares. For you trading mistakes, shares price may fall to 20 dollar per share. You loss is 10000 dollars (500*20). That is for a single company’s share ! Spend your time to understand the stock market. If you can follow these 10 steps, you will succeed in investing in share market.