Being a beginner, it must be hard figuring out how you’re going to buy and sell shares online and make investments to build enough wealth for your retirement. Many retail investors have Demat accounts and yet unaware of the procedure of buying & selling shares. FYI, India is one of the fastest-growing wealth management markets in the world with a history of more than 100 years and 7,000 public listed companies. In addition to it, India has just become the 5th largest economy in the world after defeating UK & France now on the path to become the 4th largest private wealth market globally by 2028. This widening in capital markets will be the key factor in the economic development of the country. However, in terms of market capitalization, we are still way behind compared to global standards. The participation of retail investors in Indian capital markets is significantly low and only near around 3% of the overall population is invested in the stock market.
Keeping in view the importance of retail participation in capital markets, people must be taught with the DIY (Do-it-yourself) way of buying and selling shares in the stock market for the economic growth of the country. Achieving this won’t be easy, but you gotta start somewhere. But before we proceed, let’s clear a few things:
For instance, when someone says, how to buy and sell shares online? There are two logical meaning behind this question. First, a person is a complete beginner in the stock market and is not familiar with the ways of buying and selling shares. Second, a person has a Demat account and the financial knowledge needed to invest in the stock market but don’t know how to buy and sell shares to make the most out of his investments. In short, he is looking for stock market tips or tips to select the right stocks to invest.
Therefore, we will take these both scenarios one-by-one.
The stock market is one of the most sought-after investment options for Indians after gold and real estate. Although the stock market is volatile, buying shares can help you generate a lot of money. However, you must be willing to bear the high risk of investing in the stock market. In India, people are always skeptical when it comes to investing in the stock market. Truth is, investments made inequities can allow you to generate higher profits than investments made in gold, silver, or any other financial instrument.
Besides, as we mentioned earlier, the capital markets are the key factor in the economic development of a country. Thus, you must learn your ways to buy and sell shares online via Demat account. Once you become an expert in that you can try dabbling in the market any way you want.
Here, we’re going to discuss the way of buying and selling shares for a beginner and enters the world of the stock market.
There are a series of steps that you need to follow to start buying and selling shares which are as follow:
Step 01: Get your PAN Card
Do you have your PAN Card? – If not then you better get your PAN card. PAN Card is a ten-character alphanumeric permanent account number treated as an identifier and issued in the form of a card, by the Income Tax Department, India. If you plan to buy shares online then get this – You need a PAN card! Or better, to make any financial transaction, you need a PAN card. And not just in case of investing in stocks but if you’ve decided to invest in mutual funds, FDs, PPFs, and RDs or want to open a bank account, you are going to need a PAN card for that too.
Step 02: Find a Stockbroker
Once you get your PAN Card ready, it doesn’t mean you go straight to the exchange or call directly in the company whose shares you wishes to buy. There are certain individuals, online agencies, and companies who are authorized to buy and sell shares on the stock exchange in the primary market. They are often known by name – brokers. These stockbrokers are registered and licensed by domestic market regulator Securities & Exchange Board of India (SEBI). While working out as an intermediary between share trader and exchange, the stockbrokers charge a commission in helping investors buy and sell shares.
When selecting a stockbroker, it is important to take into account the broker’s background, the broker’s fee, the commission charged, and kind of services it is providing. You can choose from full-time traditional brokers to discount brokers based on your needs.
Step 03: Open a Demat & Trading Account
Now that you’ve chosen the stockbroker, it is time to open a Demat and Trading account to buy and sell shares in the stock market. There was a time when you see people yelling orders on the floor of the exchange, but these days, one can buy and sell shares online through a stockbroker. However, to do this, you will need to open a Demat and Trading account with your stockbroker.
A Demat account is one where the owned shares reflected in your portfolio while the trading account is one which allows you to buy and sell shares or other securities in the market. The shares you buy and sell are in dematerialized form for online trading.
In India, the National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CDSL) are the depositories which allow investors to open Demat and trading accounts through brokerage firms. It is the depository participant that holds and releases the shares you purchase and sell respectively.
To open a Demat and trading account, you need to decide on the depositories you want to open your account with. Or you could just go with the broker, you want to open your account with and then know your depository participant later.
After this, you can fill the form for account opening and submit along with copies of the necessary documents required to open the Demat account with your passport-sized photograph. Once done, in-person verification would be carried out and application will be processed on successful verification. Once done, you’ll be provided with an account number and client ID.
Step 04: Transfer Money in your Account
Now that you’ve opened your Demat and trading account, in order to buy shares online, you must transfer money in your account. You can transfer the money in your account from bank account by different mediums like Credit/Debit Card, UPI, e-Wallet, PayPal or via bank transfer.
If you’re planning to transfer more than 1 lakh rupees into your Demat Account then you need Unique Identification Number (UIN) to do the transaction.
If you’ve opened your Demat account and followed the above procedure that means you have decided to start investing. Now it’s time to take a dive in the stock market to find the stocks to invest in. Defining your goals is one way to select the right shares to buy. One should determine the purpose of making a portfolio. Beginner investors who are in this to buy and sell shares must focus on the overall income, expenses, and savings to ensure a consistent flow of capital for investment. Capital preservation is what beginners mostly concerned with and tend to invest in stocks of blue-chip companies for safety reasons who are recognized for their stable performance throughout the years.
However, the investors who are in for capital appreciation prefer to invest in small and mid-cap stocks. So, first decides on your goals and risk appetite. Do not let the volatility cloud your judgment and start with industry that’s familiar to you. Any beginner can become an informed investor if he/she keeps tabs on the current market events, day-to-day happenings in the stock market, and corporate events. To do so, one should read newspapers, use stock market web-platforms and apps, and news channels as these are simple forms of passive research.
Being informed will help you in further research and understand the fundamentals which drive a particular industry. A thorough analysis can help in picking the right stocks to buy. There are thousands of stocks in the stock market but with thorough fundamental analysis, you will be left with a handful of stocks. DON’T SWEAT!!! Because your painstaking research will come to fruition soon. Even if not, you will at least able to minimize the potential risk of losing capital.
To better understand how to do a fundamental analysis of stocks in the stock market you can see How to do a fundamental analysis of stocks in Indian stock market?
Step 06: Place your Buy Order
On deciding the stock, it is time to place your order. Decides on the number of shares you want to buy to fill your portfolio with. Although it is all your decision as a beginner it would be recommendable to start small just to feel how it looks like buying individual shares.
While you’re at it, choose the order type – market order, limit order, stop-loss order or stop-limit order.
|Market order||It is the simplest of buy or sell orders which are to be executed at the current market prices. It allows investors or traders to buy at the available price. While placing the market order, sometimes the price you see at the time of buy or sell is not the exact price you pay.|
|Limit order||It is the buy or sells order which is to be executed to buy or sell the shares at the specific price or better price in either direction. Investors or traders have control over the price while placing the limit order. However, the order itself cannot be executed if the underlying security does not come to the set price.|
|Stop-loss order||It is a buy or sells order which is to be executed once the stock reaches a certain price. The stop-loss order helps investors in limiting their losses on a position.|
|Stop-limit order||Similar to a stop-loss order, the stop-limit order is a buy or sells order with a limit on the price at which it will execute. Stop-limit order may guarantee a price limit however there is no guarantee that order will be filled.|
Step 07: Place your Sell Order
So the time has come when you decided to sell the shares you invested in. It could be because you’ve attained the financial goal for which you have purchased that specific stock or maybe because the stock is falling from a long-time and you don’t plan to continue your losses in the future. Whether it is in profit or loss – not significant! What important for you right now is to understand how to sell the shares.
Well, the most basic way is through the market order to exit your position at the current share price. However, even in this, you may end up selling at a different price from what you expected to sell.
Here, you can use the limit order or stop-loss order to ensure to exit the position at a certain price. You can also set the no. of shares you plan to sell. Once the order hits, you’ll exit out of your position and the respective profit or loss will appear in your Demat account.
If you’re nervous and don’t fill like selling the shares then you can continue to hold the shares for a long-term perspective. Besides, buy & hold is one of the most common practices practised by many prestigious investors in the market.
Hope, this will help you in understanding the procedure of buying and selling shares in the stock market. Also, we hope it will encourage you as well to boost retail participation in the stock market to revive the economic growth of the country.
2 Replies to “How to Buy and Sell Shares Online? – Step-by-Step Guide for Beginners”
Step 1: Learn the basics of finance and accounting. Make sure you know how to read a balance sheet and profit and loss statement. Make sure you understand key financial ratios like PE, PB, etc.
Desired Outcome: You should be able to identify the financial health of a company by looking at the financial statements.
Step 2: Now, you need to pick an industry of your knowledge or interest. Read all the recent news about the development in the industry.
Desired Outcome: You should be able to understand the macro environment which is not within the control of the company but impact the company directly or indirectly. For example, government policies, crude oil prices, etc.
The time required: Around 15–20 hours to begin. This will be a continuous process to keep yourself updated.
Step 3: Shortlist the companies from the industry of your knowledge or interest
3.a) Shortlist the top companies/ market leaders in the industry.
The time required: 5 hours
3.b) Look around and identify the product/services you love. For example, a lot of people started wearing Jockey in the last 10 years. We all love it. Now, look at the company which sells Jockey. The page industry’s share price was around 450 in the year 2008. Today it is around 30000 in 2018. That’s around 70 times return in the last 10 years. Can you find any other company today with great future potential? Think about it…
Step 4: Open a trading account with ZERO brokerage. Why pay a brokerage on every transaction when you have the option to invest your money for free.
The time required: Few days from document verification to account opening.
Step 5: Start slow. Do not invest a lot of money together. Keep following the stock and industry and keep learning. Observe how the stock behaves when the market is good and the real test is when the market is bad. Nobody can make perfect decisions. Stock market investment is not a fixed formula but it is a combination of experience with knowledge.
I need to know more abouts it
I like to do!!
And how to register to the person who is not indian???