Hello Buddies!
In this article, I will explain three ways how you can participate in the stock markets.
1. Investing
2. Trading
3. Gambling
Please know that these are not standard definitions but are based on my understanding of the stock markets.
1. Investing:
Investing means putting your money in any asset or security after careful analysis of how future income is generated. You are sacrificing your present time, effort, and money on an asset so that it will deliver income for you in the future. Investing is for a longer duration of time like 5 years or above.
Anyone should only invest the money they are willing to lose in the stock markets. If you lose all that invested money also, your day-to-day life should not be affected in any way. Remember! Never put borrowed money or take loans and invest in stock markets.
You can decide on your own stocks or consult a Financial adviser or Research analyst before investing.
Investing in the stock markets can be done in two ways.
1. Passive Investing or Indirect Investing is where you invest money in funds like ELSS funds, index funds, etc. The fund manager manages that money and invests in stock markets.
You can either invest lump sum money once in a while or go for Systematic Investment Planning or SIPs.
In SIP, you can decide whatever amount you are ready to invest every month/quarter. There is an auto-debit option in SIPs, money is automatically debited from your bank account every month.
You can select among different kinds of mutual funds like Equity, Debt, Hybrid, etc. depending on your risk appetite.
In some other sessions, we will discuss in detail about these mutual funds.
2. Direct Investing, where you invest money directly in stocks or ETFs trading in the stock markets. You will need a Demat and trading account from stock brokers like Zerodha, Upstox, HDFC Securities, etc. You are completely responsible for the investments made here.
Watch the video for a better understanding here:
2. Trading:
Trading involves buying stocks/securities because you find that they are available at a cheaper price than their true value. Generally, the amount used in Trading should be limited and lower than in Investing.
For example, currently, Wipro share is trading at around 395/-. As far as I am concerned, it is down 45% from its all-time high. I know Wipro is one of the largest IT firms in India. There is no need to spend too much time analyzing the share and going through its Annual Reports.
So I am ready to invest 15000/- on it and buy around 38 shares. I am not in a hurry, even if Wipro’s share falls even lower, I will not be panicked. For me, 15000/- I spent is a risk well within my limits.
My target is around 700/-, when the stock price hits 700/- I will exit the trade. This is called Positional Trading. It is just for reference, and you should contact a financial advisor before entering into trading.
There are other trading models like Swing Trading, Options Trading, and Intraday Trading. We shall discuss them later.
3. Gambling:
Gambling is the dumbest way of participating in stock markets. Just because some person with a Telegram channel named Trading baba or Stock Guruji has given you a call to buy a share or option if you put money without giving any thought or researching on your own, this comes under Gambling.
As I have mentioned in the earlier article, this is a certified and confirmed way of becoming a loser. To some extent, Gambling with 1-2% of your net worth is okay. Regularly, we come across news like people taking loans worth lakhs of rupees for an interest of 5% or more per month, only to lose it all gambling in the stock markets.
The stock Market is the toughest path to earning the easiest money; be cautious!
That’s it, Buddies!!
I hope this article is informative. If you like the article, share it with your friends.
Thank you,
Shiva Kumar Lachapeta,
Equity Research Analyst
Disclaimer:
I provide the information and my views on the website only to educate new investors, stock market enthusiasts, and the common public on equity and other market investments. Please consult your financial adviser before making any investments in the stock or commodity markets. In case of any queries, you can contact me via email ID: shivakumar.lachapeta@gmail.com
