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Beginners Guide: How to Start investing in Stock Market (NSE/BSE/MCX)

Here I am with Beginners Guide for how to start investing in stock market. If you are thinking about Share market or stock market trading? Want to start investing in stocks. I hope it will help all those who are looking for place to understand how to start trading? Well here is the place where you can know how to start trading in stock market or invest in stocks. What is share market? What do you need for start investing in stocks. How to purchase stocks. The foundation knowledge all that you need to know about the stock market trading.

Stock market trader, investor listening these words excites many of us and make us afraid even at times. Lets learn how to enter in stock market in India like NSE, BSE and MCX


I am going to brief you about basic terms like what is Demat account, What is depository, how to place a buy sell on a terminal. What are different types of orders, what if you want to hold your position or want automatic exit in intraday and what is leverage and margin.

Well, the first step, talking in India you need a demat account. Now what is that: its an account that holds all the shares that you purchase in electronic or dematerialized form. Basically, a demat account is to your shares what a bank account is to your money. Like the bank account, a demat account holds the certificates of your financial instruments like shares, bonds, government securities, mutual funds and exchange traded funds (ETFs).

Now with that definition, let me elaborate you need a demat account only if you are willing to deal in Shares that too taking the delivery or holding the shares for T+1 day. If you want to invest in other than stock market you need a demat. BUT if you are planning only intraday or day trading; you don’t need a demat account. YOU NEED ONLY TRADING ACCOUNT.

Role of Demat account:


NOW WHAT IS DEPOSITORY & IT’S FUNCTIONS?
A depository is similar to a bank. It holds shares, which belong to investors, in electronic form. The investor has to open an account with the depository, through a Depository Participant (Broker). The broker is an intermediary between the depository and the investor. In India, there are two depositories, National Securities Depository and Central Depository Services. A number of banks (HDFC Bank, ICICI Bank, SBI, and so on), brokers (Zerodha, India Infoline, Motilal Oswal and Indiabulls) and institutions function as DPs.

How to open a demat account?
Choose a broker on parameters: brokerage charges, annual charges and leverage provided. Fill up a form; submit documents like PAN CARD, CANCEL CHEQUE, ID PROOF, and INCOME PROOF (BANK STATEMENT OR ITR) AND INVESTMENT OR MARGIN CHEQUE.

NOW WHAT IS MARGIN AND LEVERAGE?
Margin is your investment amount that you are investing and leverage is the limit you get on it. Let’s say you have 10,000/- to invest that is your margin and leverage is limit that broker provides for trading. Like if he gives you 4 times limit that means you can make a trade where you will need a margin of 40,000/-

Why? Because broker make commission on turnover more turnover you make in buy and sell more profit he makes.

Now once your demat is open now you get a trading terminal. What is trading terminal? Well it’s a software that enables you to go online access the Exchange and make a trade in it. You can buy and sell via that terminal. If you are not comfortable online trading, ask your broker to provide you offline trading number. On that number you can share your credentials and ask the person to put the trade on your behalf.

This depends on broker to broker but I have a Zerodha account I am explaining you the complete process with them.
After account opening, two emails are sent:
  1. Welcome email
  2. Password email
Welcome email contains login and password details to Q, our reporting tool. Q contains all historical reports; tax P&L, ledger, fund withdrawal requests, historical holdings/positions table, trade and P&L visualizations (quant reports) to help improve trading performance and more.

Password email contains the trading/Kite user ID, and the first time login password. A prompt to change this while logging into Kite for the first time will be made.

Kite is Zerodha trading terminal just like Angel Broking has Angel Eye, Kotak Securities have KEAT, ShareKhan has TRADETIGER.
Now trading online: You need the order window on Kite hover over the scrip on the watch list to initiate a Buy/Sell order window. Use shortcut keys B or S; B for Buy and S for Sell.


You have types of trades:

CNC (Cash n Carry): For delivery based equity trades.
To buy stocks for CNC or for delivery 100% money required. To sell stocks as CNC, stocks need to be available in holdings.

MIS (Margin intraday square off): For intraday trades
Trade using MIS for additional leverage/margin. All MIS positions auto-squared off 10 to 15 minutes before close of markets or when losses exceed 50% of margin (Auto-square off rule can vary based on market conditions).
  • Upto 10 times intraday leverage for equity
  • Upto 3 times for futures
  • Upto 3 times for options shorting
  • No leverage for option buying
NRML (Normal F&O trades): For intraday/overnight F&O trades without additional leverage. Exchange stipulated margins, positions taken as NRML can be held until expiry, provided required margins maintained.

Types of Orders:
  • Limit (LMT) order: Place buy or sell order at a predetermined price
  • Market (MKT) order: Place an order to be bought or sold at the best available price.
  • Stoploss or trigger orders (SL and SL-M): Stoploss if placing a predetermined loss booking order at a trigger price. Trigger if using this type of order to enter a fresh buy above the current market price or sell below the current market price when the trigger price is hit. SL if limit order to be sent when trigger is hit. SL-M if a market order to be sent when trigger is hit.
  • Advanced order types: Regular orders with time validity: Day orders for orders to be valid till end of day (selected by default).
    • IOC (Immediate or cancel) for orders to be cancelled if not filled completely immediately.  
    • Bracket orders: Intraday limit orders (NSE, NSE F&O) with a target and stoploss and an optional trailing SL all placed simultaneously. Target, Stoploss, and Trailing SL all activated only once the original limit order executed. SL automatically cancelled if target is met and target automatically cancelled if SL is hit. Trailing SL which is optional trails the stoploss price or moves the SL price every time the scrip moves in a favourable direction by the trailing stoploss value mentioned. 
    • Cover orders: Intraday market orders (NSE, NSE F&O, Currency, and MCX) with a predetermined stoploss order. Similar to bracket orders, higher leverage due to fixed stoploss and all positions auto-squared off before market close 
    • AMO (After market orders): Place orders for the next trading day the previous day itself. AMO orders can be placed only during the following time duration – Equity – 3:45 PM to 8:59 AM Currency – 3:45 PM to 8:59 AM F&O – 3:45 PM to 9:10 AM MCX – Anytime during the day, if placed during the market hours the order will go through the next day.
Well you need a stock broker for it there are many of those like: Angel Broking, Share Khan, Ventura, Kotak Securities, ICICI Direct, etc.

With them you are required to open a demat/trading account. Account opening process will be guided from them. Once you have an account you will be given a platform a trading terminal with login credentials.

Different brokers have different terminal like ANGEL HAS ANGEL SWIFT, SHARE KHAN HAS TRADE TIGER, KOTAK HAS KEAT & so on. With that you can input your share of interest and make a buy or sell or invest with the money in your demat or trading account.

Now, what you need to know is the more you trade the more chance you create for losing money. Moreover not to mention the amount of brokerage you’re going to generate and pay with taxes.

We are trading in market to make money for ourselves not to make the broker rich. You need a strategy where you are trading not trading more than 2–3 times a day.

With each trade you should target for only 2–3k profit per lot with 20–25k investment each.

Best strategy is to save on your brokerage first because your brokerage charges eat up your profit amount and increase loss amount alot. Let’s say you make a profit of 2,000/- but your brokerage is 500/- for that trade what you made 1500/- only and if you make a loss of 2000 and brokerage is constant so your Loss is of 2500/-. And people make more loss by themselves than profit.

So saving on brokerage is a must as that is a constant expense or loss that cannot be escaped. If you have a good brokerage plan you have win half of the Battle already.

Now come trading, well there are 2 types of trading:
  1. Intraday or day trade: Intraday trading deals with buying and selling of stocks on the same day, during the trading hours that are stipulated by the exchange. An intra-day trader is a particular type of stock trader. This trader both opens and closes a new position in a stock in the same trading day. Intraday trading is the most popular thing in Indian stock market specially amongst new generations. Just come with small capital and use leverage to trade.
  2. Positional or holding: Position trading is the opposite of day trading because the goal is to profit from the move in the primary trend rather than the short-term fluctuations that occur day to day. It is conventional way of trading you just buy a stock or a counter and you keep it.
Talking about day trading or intraday trading is simple. Actually talking about it, it’s better over positional trading because Return on Investment is good (approx. 10% of your investment), risk is low if you are going put stoploss. Best part your funds are not getting blocked, not Time consuming. As you don’t have a burden of your position what market will be tomorrow? You don’t need higher investment as you get leverage over margin or limit over investment in demat.

So it’s actually good to trade intraday or day trade rather than holding or taking delivery trades.

Now the question is how do we do it? Well for it we have 2 working strategy which don’t need much effort. One is technically understanding stocks and trading accordingly. Second is working fundamentally. You can choose whichever you like.

Working technically you need to choose stock on the basis of technical parameters like 15 min candlestick of any stock you can choose. I am using Zerodha that and I do have charts available there on script only.
To learn technically trading you need to know basics of Candlestick patterns. You can prefer YouTube for learning candlestick patterns.

If you trade small even you can earn that much in these follow buy above high and sell below low strategy in these score for 1000/- – 2000/- only and exit. Make sure you are using stoploss and Target.

You can trade in equity. In equity you have:
  1. Cash Trading or Cash Market: In this buying or selling of securities is done by providing the capital needed to fund the transaction without relying on the use of margin. Cash trading is achieved using a cash account, which is a type of brokerage account that requires the investor to pay for securities within two days from when the purchase is made.
  2. Derivative: It is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from shares or cash segment only.
Now, let’s say you are tempted to trade in ICICI BANK just go to ICICI and open chart and see 15 min or 10 min candlestick there and if you get any buying signal or selling signal make a trade put a stoploss as per candlestick analysis and Target not higher than 1:1 ratio. That is risk reward ratio should be equal. If you’re looking to take risk of losing 1000/- you should be making a profit of 1000/-. It can go higher than that but it needs lot of experience. I can make 10,000/- against risk of 500/- in intraday.

Well you can do fundamental trading also with minimum risk and less calculation. The easiest way of earning small. You need to know about options for it. I have a small trick that can work on options and get you some good return with less investment of time and money. Here I can educate only on working idea not in brief theory because that will be too much information. You need to do a basic research on options before moving ahead.

If you make a profit of only 2000/- daily per trade with this trick there are 22 trading sessions in a month on normal basis so with 1 trade per day you have a potential to generate 44000/- per month and this is in 1 single lot. The minimum I talk about now brokerage is not higher with option so for 22 trades I am not going to pay more than 4000/- and if I incurred loss even let’s say 7/10 I make profit so it’s like I will make a loss of 6 trades 12000/- my potential profit after brokerage charges is like 40,000/- if I deduct loss part 28,000/- of profit a month with hardly an investment of 10,000/-.

Yes it is possible. Read it how I am going to make it done.

I will cover maximum of it so even a new to options trader can also work on it.
There are two types of options:
  1. Call Option
  2. Put Option
I am not going in deep details of these but just to clarify YOU BUY CALL OPTION WHEN MARKET OR THE STOCK YOU’RE BETTING ON IS IN BULLISH OR BUYING TREND. YOU BUY PUT OPTION IF THE STOCK OR THE MARKET YOU’RE BETTING ON IS IN SELLING TREND/BEARISH TREND.

MOST IMPORTANT THING YOU ALWAYS BUY AN OPTION NOT SELL IT. SELLING OPTION IS MORE DETAILED TOPIC TO DISCUSS.

Well best strategy to employ if you’re talking about NSE options here is focus on news. Keep in touch with stock market news like
  1. CNBC AWAZ
  2. Zee business
  3. NDTV Profit
Should be watched between 8:30–9:30 a.m. then you get to know the fundamentals of stock which are in buying trend and which are in selling trend.
Once you know which stock you’re betting on simply go to nse website and that stock in search bar on the top of it. Once you’re on that stock page simply look for “Option Chain”. Now you will get a list of option contract. It will have both Call option and put option. Here look for the maximum volume option WHOSE PREMIUM AMOUNT IS IN YOUR INVESTMENT BUDGET as higher the volume more safe the trade is.

Now let me explain you the complete process. Let’s say you have heard News about SBIN or State Bank of India. You Came to know how much the stock can go up or at least you know yes it will go up. So now what you do is open NSE India. Website specially the website has to be opened although you can see option price on terminal also but we are selecting option right now. So we’re at NSE website now on the top there is a search bar and on the right drop-down box it says EQUITY. Type in State Bank of India there or SBIN if you know the code.

Now we’re on our SBIN page where it has details about SBIN it will appear something like this:


Now you can see Get Derivatives Quote| Option Chain click on Option Chain. Then you will have this window:


Now from here you can see volume in each open contract. We have seen on previous page SBIN cash market price is of 252/- approx. and as per example we are talking here its price will go up. So we will look at call option segment on the left of the page. Now this segment is in 2 colours above 250 is in yellow and below it is in white. Reason there are three types of strike price:
  1. In the money
  2. At the money
  3. Out the money
We’re not discussing about it here again as it will be too lengthy and detailed discussion. So white part will be the OUT THE MONEY for call option. Now let’s say you have 6000/- in your demat account. We know market lot of SBIN is 3000 so we have to look for an option that has a value below 2.00. there is an option whose value is 1.7. Look for the nearest option in your budget don’t go too far. WE HAVE OUR COUNTER TO TRADE. 

NOW OPEN THAT OPTION IN YOUR TERMINAL OR CALL YOUR BROKER AND TELL HIM YOU WANT TO TRADE IN THIS PARTICULAR OPTION. SIMPLY OPEN IT AND SINCE YOU KNOW ITS IN BUYING ALWAYS BUY ABOVE HIGH VALUE. FOR HARDLY 0.50–1.00 WITH SL OR STOPLOSS OF SAME AMOUNT.