How the Stock Market works: Beginner’s guide

Investing in the Indian stock market is a complicated process, but having an understanding of the basics is the first step for investors who want to invest in the stock market.​ The stock market plays an important role in the Indian economy. It also plays a role for companies to raise capital and for individuals to grow their wealth. In this blog, we will explore the different aspects of the Indian stock market.

What is the Stock Market?

An exchange or market where investors can buy and sell shares of publicly traded companies is referred to as a stock market. When an investor buys a share, he or she is purchasing a small ownership stake in that company.

Companies issue shares to the public to raise capital to finance their business operations, expansion, or to pay back their debts. In return, the investors seek to make profits from a rise in the share price or from dividends paid out by the company.

Key players of the Indian Stock Market

Understanding the roles of different participants is very important to understanding how the stock market works. The key players of the Indian stock market are:

• Companies (Issuers): These are companies that sell shares to the public for the purpose of raising capital. When a company decides to go public, it goes through an Initial Public Offering (IPO) process, in which its shares are offered to investors for the first time.
• Investors: These refer to individuals, institutions (such as mutual funds, insurance companies), or foreign entities that purchase shares with an aim to gain attractive returns. Investors can be broadly categorized into two categories: retail investors (individual investors) and institutional investors.
• Stock Exchanges (NSE and BSE): Stock Exchanges are the regulated marketplaces where buying and selling of shares takes place. They supply the infrastructure for trading, clearing, and settlement.
• Brokers: Stockbrokers are intermediaries between investors and the stock exchanges. Individual investors are not allowed to directly trade on the exchanges; they use a broker to process their buy and sell orders.
• Depositories (CDSL and NSDL): In India, shares are held in electronic format, which is known as a dematerialised form. These securities are held securely by depositories, like Central Depository Services (India) Ltd (CDSL) and National Securities Depository Ltd (NSDL), on behalf of investors.
• Depository Participants (DPs): These are agents of the depositories, usually banks or brokerage firms, who deal directly with investors to open and maintain Demat accounts. A Demat account is the account in which an investor has their electronic shares.

How to trade in the Indian Stock Market?

If you're ready to start investing in the Indian stock market, the process is simpler and more accessible than ever. Here’s how you can begin your journey with the Dhan platform:

Step 1: Sign Up and Open an Account

• Visit Dhan.co or download the Dhan app.
• Provide your mobile number, PAN card, Aadhaar, and basic personal details. Dhan offers a fully online, paperless KYC (Know Your Customer) experience.

Step 2: Complete KYC and Link Your Bank Account

• Upload documents as prompted. Dhan’s guided interface makes this easy.
• Link your bank account to fund your investments and for payouts.

Step 3: Explore the Platform

• Familiarise yourself with Dhan’s dashboard.
• Use their built-in educational tools, watchlists, market news, and research features to identify stocks and funds that interest you.

Step 4: Make Your First Investment

• Search for a stock, ETF, or mutual fund using the app’s search function.
• Review the available data and insights for each asset.
• Enter the amount you’d like to invest, and preview the transaction.
• Confirm your order and monitor your holdings in the portfolio section.

Step 5: Track, Learn, and Grow

• Use Dhan’s smart portfolio analytics to understand your gains, losses, and allocation.
• Set alerts or create SIPs (Systematic Investment Plans) for regular, disciplined investing.
• Read the Dhan blog, use their in-app learn modules, and don’t hesitate to ask questions or seek help from their customer support.

How to start as a Beginner

Beginner investors should follow the following steps to begin their investment journey in the Indian stock market:

Educate yourself

Before putting your money into stocks, understand the basics of how financial markets work, basic investment strategies, risk management, and the importance of patience. Dhan YouTube channels are a great source of information for beginners.

Define your investment goals

Be clear about what you want to achieve: Are you investing for long-term wealth, retirement, a major purchase, or another reason? Define your goals, how much risk you’re comfortable with, and the time horizon for your investments.

Start small

At first, there's no need to take a big risk. Start with a small quantity. As you observe how the market functions, you can acquire firsthand experience, grow from your mistakes, and progressively gain confidence.

Diversify your portfolio

Do not put all your money into one stock or even one sector. Diversification spreads your risk across different industries, so if something impacts one area of the market, your whole portfolio isn’t at risk.

Think long - term

Stock prices move up and down in the short term. Committing your money for the long term allows you to ride out the market’s volatility and benefit from compounding returns.

Conclusion

A disciplined approach, patience, and constant education are necessary for success in the Indian stock market, which presents an exciting opportunity for wealth accumulation. Beginners can successfully navigate this fascinating environment and achieve their financial objectives by understanding its basics and following prudent investing principles.