Now that you have decided to invest in stocks for the medium to long term, you are on the right track to becoming a Ninja Investor. It is time to get hands-on with your own demat/trading account, which will facilitate your investments in shares, gold ETFs, and other instruments.
You are almost halfway through to becoming a Ninja Investor; remember, the next 50% will be more crucial to helping you achieve your investment goals. It is high time that you had your own investment account. Take some real action by applying all of your learning for your own investments. Once you open an account and apply what you learn, you will be on the super-fast track expressway to becoming a Ninja Investor.
To help you do this, I’m going to take you through:
- Charges?Fees for an online investment (demat) account
- The process of opening an account
- Getting familiar with operating your account
1. Charges/Fees for an online investment (demat) account
Before you open a demat account, you must know the features of the account, such as:
- Account opening charges
- Annual maintenance charges
- Brokerage (delivery and intraday) elements
A comparison of these features can help you choose a broker.
Account Opening Charges: These are one-time charges paid to open the account. Some brokerage firms may not charge such a fee; nevertheless, it should not be the only criteria in selecting a broker.
Brokerage Fees (Delivery & Brokerage): Brokerage fees are very important for regular investors or traders, as they will incur frequent charges. Investors who generally take delivery of stocks for the medium to long term must focus on and shortlist a few firms with lower delivery and brokerage fees. Intraday brokerage is applicable for transactions squared off (or closed) within one trading day/session.
Traders who do enter into more intraday trading transactions are more focused on intraday brokerage activities. If someone is a trader cum investor, then considering both delivery and intraday brokerage fees is important.
2. Opening a Demat Account
You will be surprised to know that opening a demat account is simpler than opening a bank account. To open a brokerage account, you need the following:
- A PAN card
- Address proof such as a passport, vote ID card, ration card, driver’s license, or other approved documents.
- If you have these documents in place, you can compare different brokerage offerings and choose the one that fits your investing needs and budget
3. Operating your account
A demat account is a safe and convenient facility for investors/traders to hold stocks and other securities. In the old days, stocks were traded physically and were subject to theft, stamp duties, signature issues, problems with odd numbers or lots, and others. Today, because stocks are kept, there is no need to be concerned about such issues.
Further, your address and bank account information are stored in a centralized demat account that is linked to different companies (whose shares you hold). Any changes to your address, bank, or contact details are made in your demat account. You also need to get familiar with some key features to become a smart investor, such as the following.
MarketWatch (or whatever it is called depending on the demat account) is like a main dashboard that lets you view a list of your stocks. You can also group your stocks into different groups or watchlists, such as for bank stocks and IT stocks, etc. If you trade and invest, you can create separate watchlists for each activity.You are free to add or remove watchlists and to add or remove stocks from each watchlist. Consider this activity similar to storing files and folder on your computer.
- Placing Orders:
You can place a buy order or a sell order, and each has various classifications, including:
- Market Order:
A market order enables you to buy/sell at the prevailing market price, which is the price quoted by the opposite party. For example, if you place a buy market order for 10 shares of ITC, and if the opposite party/seller is willing to sell at Rs.270 per share, your order is executed at Rs.270 and you purchased 10 shares of ITC at Rs.270.
- Limit Order:
A limit order enables you to buy/sell at a specified price. For example, if you place an order to sell 10 shares of Infosys at Rs.2,360, your order will be executed as soon as a corresponding buyer is found to buy at your price. If you expect to sell at a higher price (say, Rs.2,380), finding a buyer may take longer.
- Stop Loss Order:
A stop loss order is placed once you have taken a buy or sell position. For example, suppose you purchased 1,000 shares of Karnataka Bank at Rs.82 with an intention to sell when the price goes up. If the price of the stock increases to Rs.84, you make a gain of Rs.2 per share or Rs.2,000 in total. However, if prices decline by Rs.2, you lose Rs.2 per share, or Rs.2,000 in total. To control your losses, you place a stop loss order at Rs.81.The stop loss order ensures that, when prices fall (something you cannot predict), you will lose at most only Rs.1 per share, or Rs.1,000 in total (because your system will sell at Rs.81, reducing your losses to Rs.1 per share). However, if prices rise, you can patiently wait for more profits. The stop loss order controls your downside risk and limits your upside until you book profits.
- Market Order:
Apart from the different types of orders, get familiar with the order book, which lists all orders placed and their status (whether or not executed).
- Monitoring Positions:
Although investors generally buy stocks, traders can initiate both buy and sell positions. However, investors must know about positions. Most trading software packages have a position table (or page) that shows the net position of a trader or investor.For example, if you purchased 100 shares of HDFC at Rs.730, the position statement will show a buy position of 100 shares of HDFC at Rs.730. Let’s say that the stock price rises and you sell 40 shares at Rs.740. The position statement will show the net outstanding position as follows:
- Net buy position on 60 shares (100-40) of HDFC @ Rs.730 and a profit of Rs.400 on 40 share sold (40 x Rs.10 gain per share)
- Therefore, 60 shares were bought that have yet to be sold. Once you sell these 60 shares, your net position becomes zero.
I am sure that such information is basic for people who already have demat accounts. However, for a beginner, familiarizing oneself with a demat account may seem complex initially. Beginners can take a break and later revisit this article while simultaneously logging in to their demat account to understand these features clearly. The idea is to get started and learn gradually. Even if you were not able to understand this information, you can still do well if you know how to buy and sell stocks, and maintain your account in order.
Now that you are familiar with stocks and how to operate your account, let’s learn more. If you want to get current or historical stock prices, visit the websites of the NSE (www.nseindia.com) and the BSE (www.bseindia.com).
Feel free to share your comments, feedback, or queries. Until next time, happy