SEBI allows investing in the stock market to an individual who is 18+ years old. If a college student is above 18+ years old, he/she can start investing in stocks.
The first thing you need to do is open a Demat account with a broker as you cannot go directly to the stock exchange and for this, you must have the documents required for opening a Demat account such as your identity proof, PAN card, etc. And then you need to learn the fundamentals of the stock market.
As a beginner, focus on learning rather than earning. Understand derivatives (option, futures etc.), the difference between bullish and bearish stocks and technical analysis (trends etc.). Then you can think about investing in stocks because the stock market is very risky.
Stock Market Terminology
Stock market terminology is industry-specific and such terms are used in the stock markets frequently. Experts use these terms to explain trading strategies, indices status, stock market patterns, and various other aspects of the stock market. So, you need to know these terms really well. It will enhance your understanding of the stock markets.
- Stock: Stock is the ownership certificate of a company.
- Defensive Stock: Stocks that provide a constant dividend even in the extreme critical economic situations.
- Ask/Offer: The minimum price a shareholder wants to sell the stocks.
- Bid: The maximum price a buyer wants to pay for a share.
- Stock Market: Stock market permits companies to issue their stocks and investors to buy/sell stocks.
- Business Day: Monday to Friday, apart from public holidays.
- Commodities: Agricultural products and natural resources used for commerce available to trade on a separate commodities platform.
- Blue Chip Stocks: Shares of industry-leading businesses that offer stable and regular payments to investors.
- Underlying assets: The financial assets determine a derivative’s price. Common underlying assets are stocks, commodities, bonds, currencies, and market indices.
- Derivatives: Financial securities that prices are derived from underlying assets.
- Bear Market: A period of constant falling stock prices.
- Bull market: Investors can expect a rise in stock prices.
- Beta: A measurement that represents the relationship between stock price and the overall movement of the stock market.
- Delta/Hedge ratio: Ranges from 0 to 1. Represents a ratio of the change in the underlying asset’s price and the corresponding change in the price of a derivative.
- Volatility: How fast a company’s shares go up or down.
- Brokerage firm: Helps investors to purchase or sell financial securities in return for a commission.
- Dividends: A part of a company’s earnings paid to its shareholders quarterly.
- Exchange-Traded Funds (ETFs): An ETF is a bunch of financial securities like stocks, bonds, commodities that can be traded like a common stock.
- Futures and Options (F&O): These are derivative financial securities. The contracts based on underlying security given at a predetermined price to be sold/bought on a later date.
- Hedging: A strategy to minimize the risk of potential losses.
- Initial Public Offering (IPO): The first issue of shares by a company to the public to raise funds.
- Liquidity: How quickly a financial security can be purchased or sold without impacting its current price.
Investing Tips for Beginners
Follow these guidelines to invest in the stock market:
- Take informed decisions.
- Invest in a company that you understand.
- Avoid the herd mentality to make investments.
- Follow a disciplined investment approach.
- Do not let emotions affect your investing decisions.
- Don’t try to time the market.
The government allows adults to invest in the stock market. Investing at an early age is a very good habit. You need to research a lot before investing. Investing reasonable pocket money is fine but do not be too crazy about stocks and the market without its clear fundamentals and basics.
You can start investing with small amounts in mutual funds which are very less risky mutual funds are professionally managed.