Every market is a place where buyers and sellers meet to transact. An equity market (or its synonymous equivalent, the stock market) is a platform for trading in shares or equities offered by companies in return for money. It is the place where buyers and sellers meet to trade in Listed Companies that have made an offering of their equity to public investors. These investors buy an ownership stake in the company expecting to receive a share of the profits in the form of dividends, or profiting from the growth of its stock price, or both.
What makes equity trading attractive is that the investors can become partial owners of a company. To a company, selling shares is a way to raise capital to expand their business. In order to do so, it will list its stocks on one of the stock exchanges like the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Equity share trading is roughly in two forms – spot/cash market where the stocks are traded for immediate delivery and futures market where the shares’ delivery is due at a later date. The normal trading time for equity market in India is between 9:15 am to 3:30 pm, Monday to Friday. On Saturday and Sunday and on public holidays, trading does not happen unless there are special circumstances like mock trading or a special 60-minute Diwali Muhurtam trading in the evening.
There are advantages and disadvantages to trading equity market. The outcome of any situation is dependent on the way we behave.
- Opportunity to make huge profits
- Easy buying and selling of stocks
- Improper research before investing can lead to a loss
- Market volatility due to trends like COVID-19 can erode wealth overnight
To trade in equity share market, you will need the following:
- A demat and trading account,
- Funds to buy your selected stocks
- A good broker platform to execute the trades
Thanks to technological advancements, you can do online equity trading, at your home, office or even while on the move.
Skilful and experienced traders will always look for evidence to use before investing in the market. Some traders might look for trends on a chart while other traders might look to see if demand might be increasing for a commodity.
The evidence that traders use will typically be classified into two broad categories, fundamental analysis and technical analysis.
Both types of analysis allow a trader to collect evidence to form a decision about the trades they are considering placing in the market. The analysis will form the basis of where the trader thinks the market will move and thus, whether to buy or sell a given futures contract.
Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. Earnings, expenses, assets, and liabilities are all important characteristics to fundamental analysts.
Technical analysis differs from fundamental analysis in that the stock’s price and volume are the only inputs. The core assumption is that all known fundamentals are factored into the price, thus there is no need to pay close attention to them. Technical analysts do not attempt to measure a security’s intrinsic value, but, instead, use stock charts to identify patterns and trends that suggest what a stock will do in the future.
Finally, it is always good to have some ground rules before you trade in equity.
- Never go against the sentiment of the equity market today.
- Buy low, sell high.
- Think long term.
- Be extra cautious about intraday trading.
- A Rs. 1000 stock is not expensive and a Rs. 5 stock is not cheap.
Compiled by:K.M. Chaman Kumar