The stock market has become so easily accessible for everyone with digitalization. With the right strategies and proper guidance, even those with zero knowledge of the stock market can earn significant profits. But for that, it’s important to start right.
You may have heard stories about people building fortunes with stock market trading and also about people losing everything in it. Both are true. But it’s not all about luck; it’s about how you start, how you plan, and how well you learn from your mistakes.
If you want to become a stock trader but don’t know how to start investing in stock market, we are here with this guide to explain the process step-by-step:
A Step-by-Step Guide to Start Investing in The Stock Market
Here’s a step-by-step guide for beginners to start investing in the stock market:
1. Identify Your Investment Goals
The first step in your investment journey should be identifying your investment goals. These goals can be short-term or long-term. Having a clear idea about your goals will help you develop the right investment strategy and pick the right stocks to invest in.
Short-term goals like a vacation, home renovation, a down payment, an event, or anything like that. On the other hand, long-term goals include building a retirement fund, saving funds for a child’s education, or building a fortune.
Now, even if you have clear goals, think about how much you need to achieve and by what time. Rather than generic goals, set specific targets, such as ‘accumulating xyz amount by the year abcd.’
Make sure to be realistic when setting your investment goals. Your goal should align with how much you can afford to invest. For investors with longer time horizons, the risks are lower as they can make up for the losses over time. On the other hand, short-term investors need to be very specific about their risk tolerance.
2. Determine How Much You Want to Invest
Your investment amount should depend on your goals and your financial health. It’s possible that the amount you want to invest doesn’t match the amount you can afford to invest.
But that’s totally okay. You can start with any amount and gradually increase it over time. If you don’t have a big lump sum amount to invest at once, you can consider investing a small amount monthly or quarterly.
Your investments should not have a negative impact on your overall financial health. Before you determine your investment amount, keep in mind the following factors:
1. Your Income Sources: You should have at least one stable source of income, so that you can easily manage ongoing expenses along with the investments.
2. Pay Off Major Debts First: While you may have some ongoing loans while investing in the stock market, try to pay off high-interest debts before you put all your money into the market.
If you have high credit card outstanding balances or high-interest loans, try to pay them off first, as stock returns are usually not higher than the interest rates and fees on these debts. So, to get actual value from stock market investments, it’s essential that you minimize your debts first.
3. Have an Emergency Fund: You should always have an emergency fund that you can use in unfortunate situations. Make sure to have a sufficient emergency fund for basic expenses for a few months before you decide to put in all your savings in the stock market.
4. Create a Budget: Create a realistic budget that includes your basic expenses, emergency savings, EMIs, and investments. This will help you get a clear idea of how much you can comfortably invest in the stock market without affecting your everyday life. Over time, you can cut off unnecessary spends and increase the investment amounts.
3. Choose a Trusted Brokerage Platform
Once you are well aware of your financial goals and ideal investment amount, you can proceed further to choose a reliable brokerage platform. Various banks, NBFCs, and online payment merchants also provide the option for stock trading within their platforms.
Apart from them, there are some brokerage platforms that are exclusively built for stock market investments. Before you choose a platform, check its brokerage fee, hidden charges (if any), ease of use, and customer reviews.
4. Determine Your Risk Tolerance
Before you start investing in stock market, you should know your risk appetite or risk tolerance. Risk tolerance refers to how much risk you can afford to take without having a poor impact on your financial health.
Whether you are a short-term stock trader or a long-term investor, you should have a clear idea about your risk tolerance. Based on this, you can plan your risk management strategies.
Your risk tolerance should depend on your time horizon (the time period for which you can stay invested), savings, emergency fund, and your own preferences.
For stock traders with longer time horizons, it makes sense to have a higher risk tolerance as they are more likely to make up for any losses in the long run. But short-term traders should be very specific about the stocks or mutual funds they choose.
5. Open Your Demat Account
To start investing, you need to register for a demat account (dematerialised account) and a trading account. The demat account is responsible for holding your shares, while the trading account facilitates buying and selling of stocks. You can set up these accounts on your preferred brokerage platforms and complete their KYC to start investing conveniently.
6. Add Funds to The Wallet
The next step in the process is to add funds to your wallet. These funds should align with the budget you have created and the investment amount you have decided.
You can add the funds using any of your preferred methods, including UPI, net banking, cards, etc. If you don’t have a large lump-sum amount, you can start with whatever you have and gradually increase your investments over time.
7. Pick The Stocks/Mutual Funds to Invest In
Now comes the most important step, i.e. choosing the right stocks to invest in. If you are a DIY stock trader, make sure to do proper research with authentic sources of information. You can utilize research reports, analysis tools, etc, before you make a decision.
However, if it seems difficult as a beginner, you can consider learning basic investment strategies through online courses or webinars. Strategic Alpha’s weekly techno value investing workshop can be highly valuable for beginners trying to figure out how to start investing in the stock market.
You will learn about candlestick patterns, strategies, and various other things that will help you make the right investment decisions.
8. Keep Monitoring Your Investments
It’s never a good idea to completely stop looking at your investments. Make sure to monitor the performance of all your investments. It will help you understand which decisions worked in your favor and which didn’t.
Also, you will get insights into stock market trends, Candlestick patterns, the right time to invest in stock market, and much more. You can learn from your past mistakes and improve future strategies to strengthen your investment portfolio.
Learn Stock Market Trading From Experts at Strategic Alpha
Strategic Alpha is one of the most trusted and fastest-growing stock market investor communities. By joining the weekly webinar or the Conviction Club, you can learn directly from investment experts and mentors like Suyog Dhavan.
It gives you exclusive access to learning modules, one-to-one sessions with mentors, regular stock market trend updates, and much more. So if you are planning to start investing in the stock market but don’t know how and where to start, joining Strategic Alpha’s learning community can be a great starting point.
FAQs
1. Do I need a Demat account for investing in stock market?
Ans. Yes, you will need a demat account to start investing in the stock market.
2. Can I start investing in stock market without a broker?
Ans. Yes, it is possible to open a demat account and start stock market trading on your own. Brokerage platforms make the process easier, but if you want no third-party involvement, you can do it by yourself.
3. Which is better for beginners: long-term investing or short-term trading?
Ans. For absolute beginners, it can be better to start with short-term trading and eventually switch to long-term investing once they learn from their mistakes and have a proper idea about how things work in the stock market.
4. Can I start investing in stock market with small amounts?
Ans. Yes, you can definitely start investing in stock market with small amounts.
5. Do I need prior knowledge before investing in stock market?
Ans. You don’t need to be an expert, but yes, you should have a basic idea about how the stock market works and basic terminology before you start investing.
