The stock exchange- an attractive and risky platform to increase one’s wealth, is a marketplace where one trades stocks and other financial instruments.
Before spending one’s hard-earned money in the stock market, it is critical to understand the fundamentals of investing and trading. To be successful in the stock market, one must have a solid plan and a clear grasp of the prerequisites.
Knowing the requirements and having a basic grasp of financial markets will aid in starting with investment and trading. Also, one must have a defined investing objective, a reliable source of information, and the discipline to stick to the strategy to be successful in the stock market.
What are the essential requirements to begin trading and investing in the stock exchange?
To commence with trading and investing in the share market, one must meet the following prerequisites:
1. Gather personal documents
Gather some personal documents to start trading and investing in the stock exchange. Without this, one cannot invest or trade in the stock market.
The documents required for demat account and trading account are as follows:
- PAN card
- Aadhaar card
- Six-month bank statement
- A cancelled cheque with the applicant’s name from the active bank account
- Proof of residency in the form of documentation recognised by the broker, depository participant, or applicable bank
- Passport-size photographs
- Income proof, etc.
2. Open a demat account
Opening a demat account is the main prerequisite to commencing investing/trading in the Indian share market.
A demat or dematerialised account is a digital account used in India to hold securities such as shares, bonds, ETFs (exchange-traded funds), and mutual funds in electronic format. A demat account eliminates the need for holding physical certificates of securities and helps reduce the risk of fraud or loss.
Nowadays, opening a demat account is a straightforward process and can be conducted online or offline with the assistance of a depository participant.
3. Link bank account
The next critical prerequisite is to link the active bank account with the trading account. Linking a bank account to a trading account makes buying and selling shares smoother by facilitating money transfers. Most brokers require this when opening a demat and trading accounts.
Some brokers provide a two-in-one account that combines demat and trading, as well as a three-in-one account that includes trading, demat, and bank accounts. This allows one to trade directly from their bank account while holding all their securities in one place.
4. Gain basic knowledge of the share market
Learning the fundamentals of the stock market is essential for successful investing and trading. This involves understanding the various financial assets accessible, such as stocks, bonds, and mutual funds, and the different investment methods.
One must also become acquainted with essential financial concepts and terms such as diversification and risk management. Knowing the basics will help make better investing decisions and achieve financial objectives.
5 Open a trading account
Like a demat account is required to hold shares, a trading account is a must to purchase and sell stocks and other securities in India. A trading account facilitates the purchase and selling of securities.
As it is not possible to purchase or sell securities directly on a stock market, one must create an online trading account with a registered broker. Furthermore, to start a trading account, one must either link an existing demat account or open a new one.
Investing and trading on the stock exchange need a certain degree of preparation and knowledge. Some of the requirements include: learning about the stock market and various investment options, creating a trading plan, identifying personal financial goals, understanding risk management, and obtaining the necessary resources and tools for monitoring and tracking investments.
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