05 Intro To Stocks – Tools for Trading


In this lesson, we will equip you with everything
you need to start trading, right from websites you should visit, to setting up your computer
and opening a brokerage account. Choosing a broker is probably one of the first decisions
you make before you start investing or trading in stocks. 1-Choosing a Broker: Discount vs Offline brokers] I’m sure you’ve noticed that more and more
consumers are buying their day to day things online. Imagine if 10 years ago you had told
your parents that today, you’d be buying a watch for your best friend online and would
have it couriered to his house right on time so that it arrives on the day of his birthday.
Your parents would have likely reacted by thinking you’re insane. But here we are, in 2015, and that’s the world
we live in. We buy our watches online on e-commerce websites. We can go to local stores/showrooms
down the street but we just love buying stuff online. Why is that? The watch you purchased online
could have been purchased at a shopping mall near your house. We can’t really see the watch
we’re buying online. We can’t touch it, feel it. And yet we buy it anyways. The obvious reason is price; the watch could
have just been cheaper online. Another, equally compelling reason is convenience; who wants
to wake up on a Saturday morning and drive to a store, find a watch they like, stand
in line to pay, and come back home- when you can do the same exact thing, for cheaper and
from the comfort of your home! And finally, the customer service provided by the website
might be, as odd as it might sound- amazing. Even if it’s through email and phone support-
the customer service experience might win us over. So, how does that relate to the brokerage
industry? Well, the analogy is this: Online shopping V/s shopping mall is akin
to Low cost brokers v/s offline brokers. Offline brokers sometimes have hundreds, even
thousands of branches and stores across the country. And while 10 years ago, when the
internet was not widely accessible, it made sense to go visit an offline branch and open
an account, learn how to trade. But not anymore, discount brokers are completely online and
pass on all those savings to you, the customer and focus only on two things, good customer
service and great software. At this point you might be wondering what
exactly the benefits of discount brokers are. Well, as the name suggests, discount brokers
are significantly cheaper to trade through. Let’s take an example. This is a brokerage calculator; I want to
show you the breakup.Lets say you buy 2000 shares of Reliance, the turnover on this trade
is almost 40 lakhs. You will notice that brokerage charged is Rs 40. So if your turnover is 1
lakh, 10lakhs or even 1 crore, you are still charged Rs 20 flat fee.But look at this; you
have other charges, STT, stamp duty which traders like us pay.
When we are trading this is an essential part of money management, managing risk is a huge
part of your methodology, we need to know what our costs are and we should treat our
trading like any other business. Traditional offline brokers on the other hand,
instead of charging you Rs 20 per trade, a flat fee per trade they would charge a percentage,
so if your trading business grew, their brokerage will increase. Say that percentage charge
is 0.02% and that means this will be about Rs 720. Their take would be Rs 720 on this trade,
if your turnover increased so did their take. Just choosing a discount broker has got a
95% savings for traders. But donot take my word for it, go online and
use the brokerage calculator, do your research and pick a good broker. Often times, offline brokers will have “tips”
and advisory services to inform investors what stocks to buy or sell. Suppose you are looking to buy air tickets.
You can deal directly with an airline, but the airline also offers, amazingly, advisory
agents who get paid a salary by the airline and also get a commission for each ticket
you purchase through the airline. The agents, employed by the airline, claim to offer you
the best deal possible. This sounds great! But on the other hand you
have an independent agent who is not employed by an airline. Who would you rather trust? The employee at
the airline who gets paid a commission for selling you a ticket through his particular
airline, or the independent agent who seeks to find you the best deal possible through
whichever airline provides the best offer. The answer is obvious, right? You’re going
to go with the independent agent. Similarly, offline brokers offer an advisory
service to their clients. Each day, a relationship manager from the broker will give “tips” on
which stocks to buy or sell to their clients. We would advise you not to follow these tips.
We at Trade Academy, aim to equip you to make your own smart and informed decisions based
on your own research. Here is a quick checklist you can follow when
it comes to selecting which broker to trade through.
– False claims Stay away from brokers claiming to provide
exceptional returns, it is not a brokers responsibility to advise its clients on what stocks to buy
and sell! A brokers responsibility is to be a transparent middleman between you and the
stock exchange. – Transparency
Stay away from brokers that do not clearly state how much they charge on their trades;
many brokers in India, unfortunately, get away by charging hidden fees. – Credibility
Look at how many complaints have been registered against the broker. The NSEs website does
a great job in showing how many complaints have been registered against. Your money will
be sitting with the broker- make sure its got a clean track record with minimal complaints. – Customer Service
Do not underestimate things like customer service, being able to trade online, and being
able to place trades through your phone. 2-Opening Your Account Alright, you have made the most important
decision, which was to choose your broker! Lets quickly run through the basics of what
you need to know to finally get your feet wet! The first thing you are going to have to do
is go through basic account opening formalities. In a nutshell, you will need to sign some
documents, prove that its actually you that will be trading on the account by going through
a process called In Person Verification. Next, you install the trading software. Most
likely, you will be doing your trades on your Desktop, but some brokers also offer mobile
versions. Your broker should assist you with getting the software installed, and ideally,
should give you a demo on how to login, place trades, and just get comfortable using the
software. (and if your broker doesnot do that- it might be a good indication that you are
with the wrong broker!) 3- What is Margin Money?
We are going to quickly go over the concept of margin. Brokers often try to outdo each
other by offering more margins to their clients. On paper, margin sounds almost magical. In
essence, what the broker does is lend you money at 0% interest. For example, lets say
you are looking to buy 10 lakhs worth of shares in the morning and sell it in the evening.
The broker might offer 10:1 margin, meaning only 1 lakh will be used up from your account
to purchase the 10 lakhs worth of shares. The broker will pay up the remaining 9 lakhs.
Sounds magical, right? Margin can be wonderful; but it can also be
disastrous. If the stock starts to move against you, your broker will call you mid-day- asking
you to replenish your funds to cover up the shortfall. In essence, here is what it comes
down to: avoid using margin when you are starting out with stocks. Many investors and traders
get wiped out because they overextend themselves. Our philosophy at Trade Academy is simple:
until you have mastered your methodology, stay conservative and say no to margin. 4-Setting up Welcome to the world of trading, fuelled by
testosterone and endless amount of caffeine. But if you study the best investors and traders…there’s
one word that comes to mind. Simplicity The KISS principle is one that works wonders
with investing and traders: Keep it simple stupid! In reality, an average laptop or computer
is all you need to not just do well, but to beat those crazy delusional traders. Remember
how we used the words “irrational exuberance” and “mania” in earlier lessons? The crazy
traders with 20 monitors and pounding cup and after cup of coffee are the ones that
cause those terms to get invented in the first place. Don’t become one of those guys. Keep it simple Keep in mind, you can always use your mobile
phone and tablet to place your orders! We live in a digital world. All you need is a
reliable internet connection and reliable trading software to trade on. 5-Sources of News
When it comes to the stock markets, news is what moves the markets. But you need to get
the news in a timely manner. Not only that, but you also need to ensure that the news
source is credible. Here are some great websites and news sources to get you started. Keep
the websites open all the time! If your mobile allows for flash alerts through mobile apps,
enable them! And if it falls within your budget, subscribe to newspapers like the Wall Street
Journal and the Economic Times. As you begin your journey into the world of investing,
being informed is going to be the most important task on your hand. And what about company
financials like balance sheets and income statements? These websites can provide you
with really resourceful data 6-List of recommended reading
Here is my favourite part, trading and investing is a never ending process of learning. As
the world we live in changes, old ways are replaced by new tweaks; keep yourself open
to new ideas. These are some of the timeless books most people recommend.
7 – Charting Then we have technical price charts, there
are a lot of options, free and paid check them all out to make a decision. Remember
if you are trading on the daily timeframe then it is always free of cost but the real
time data will always cost you. Here are some places where you can get charting at
8 – Trading Methodologies So now that you are equipped with the basics
to get started- technical trading which uses price charts or fundamental analysis which
uses company financials. And as clich as this might sound, since we have all read or watched
Harry Potter…think of your trading methodology like a wand. As the famous quote goes, The
Wand chooses the Wizard And once you have found the trading methodology that you feel
is right for you, you are ready for the next course in the series. Until then, keep experimenting.
We are going to leave you with a handful of the most commonly used trading methodologies
legendary investors and traders have used, and continue to use. Benjamin Graham
“The Father of Value Investing, Graham is famously known for being Warren Buffets inspiration.
His classic book and widely considered as the “bible” on the basics of investing can
be found in the 1934 classic Security Analysis. His most popular book, and still widely used
to this day is ‘The intelligent investor published in 1949. Regardless of what methodology you
pursue, this is a must read book for all investors and traders. Rakesh Jhunjhunwala
“The Warren Buffett of India”, Jhunjhunwala is a living legend. Widely regarded as the
most prominent and well known investor in India. Jhunjhunwala followed and continues
to follow many basic value investing principles. His investment philosophies are more aligned
to trend followers such as George Soros than a long time value investor as Buffett. Jhunwala
is a big believer in investing in companies with a solid backbone of entrepreneurs with
a clear vision in mind. Warren Buffett
The Oracle Of Omaha, Buffett is widely regarded as the greatest investor of all time. With
a staggering net worth of 50+ billion USD, the simplicity of his decision making is what
makes him so endearing to his followers. He does not simply buy shares of a company: his
decisions are based off the premise that he will forever own the company, thereby breaking
any thoughts of short term gains that could compromise the long term growth of the company.
Buffett has influenced millions of value investors around the world. Swing Trader Legend: Paul Tudor Jones
Shorted black Monday crash, Trading since 1976 Paul Tudor Jones was seen in the famous
movie trader where he candidly talks about an impending crash based on stock charts.
He used data to statistically analyse the probability of a crash, and (pause) he was
right! Today he manages a hedge fund using a mix of top down macro economics and price
charts. He was one of the highest earning managers in 2013, with a networth of over
4 billion dollars. This is the last video in this series and
we have shown you that investing in the stock markets is probably the wisest investment
decision you can make. We have shown you what stocks are, how they get formed, and how they
get listed on stock exchanges. We have explained the roles of all the different players involved:
the stock exchanges, SEBI, how to choose a broker, and how to get started! We have shown
you how prices can rise and fall, giving you opportunities to buy and sell at the most
opportune times. In the next few courses will take you through
technical analysis methodologies and fundamental analysis techniques. Join us again to know
more.

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