The stock market caters to many different sorts of traders. Traders can pick a method that works for them depending on their risk tolerance, the time horizon for making a profit, and other personal considerations.
There are two main categories of trades: the quick ones and the slow ones. But if you divide trading into two groups based on how you make your investments, you get fundamental and technical trading. Furthermore, trading can be broken down into subcategories such as intraday, swing, and positional depending on the time frame. There is some overlap between the different trading styles because they all have certain common characteristics. For instance, day trading and technical analysis are the same things, whereas fundamental analysis and position trading are equivalents. This article will assist you, as a novice stock trader, grasp the differences between and advantages of various stock trading strategies.
What Is Stock Market Trading?
Trading, in its simplest definition, consists of the buying and selling of goods and services between different parties. Trading is the lifeblood of any functional economic system. Creating new wealth is crucial to making headway, and a market is a place where this can take place.
The goods and services that are bought and sold define a market. For instance, the stock market is the marketplace for trading shares in corporations and other commercial entities. Because of this, one must educate themselves on stock market trading if they want to make money by investing in firms.
Shares in publicly listed companies can be bought, sold, and issued with the help of a stock market. The stock exchange allows for both in-person and remote trading of equities. Therefore, prospective stock market investors should study the stock market’s origins and past. The following is a discussion of the evolution of the stock market:
History Of Trading
When you think about it, the agricultural revolution could be considered the beginning of human civilization, and trade has been around ever since. However, commerce has taken many diverse forms throughout different cultures. The primary reason for the failure to unify into a unified system is the existence of separate human groups.
However, in the past, the barter system, where services and things were sold in return for other services and goods, was a kind of commerce that was common throughout many communities.
However, without a common currency or method of determining prices, the barter system was deemed cumbersome. This inconvenient situation paved the way for money, which serves as a benchmark against which the worth of all goods can be evaluated. An array of subsequent financial and economic innovations, like the credit facility, stock trading, etc., can be traced back to this breakthrough discovery.
Joint-stock corporations in Europe gave rise to the stock market, which in turn aided European imperialism. In several locations across Europe, impromptu stock exchanges began to emerge. The Dutch East India Corporation was the first joint-stock company to issue shares for trading on the public market when it did so through the Amsterdam Stock Exchange.
When it became clear that joint-stock corporations were crucial in promoting both economic growth and global expansion, they were made an industry standard. It wasn’t until 1875 that the Bombay Stock Exchange became the first electronic trading platform in India and Asia.
In India, Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two primary exchanges where stocks are bought and sold.
Types Of Stock Trading
Let’s have a look at the many types of stock trading accessible in the Indian stock market so you can pick which is ideal for you.
- Intraday Trading:
The trader buys or sells the stock on the same day in intraday trading or day trading. Day traders book gains and losses rapidly and close their trades before the stock market closes. Stocks can be held for a few hours, a few seconds, or numerous times in a single day. Intraday trading is extremely volatile and necessitates quick decisions.
This aggressive trading technique is intended for active traders who can take rapid decisions by frequently following stock market fluctuations. Intraday trading is not recommended for novices owing to the high level of risk involved.
To trade intraday, one must have strong technical analysis skills as well as risk management approaches. Intraday trading is not suggested for absolute beginners just starting out in the trading arena. With SEBI’s decrease in the total margin, more cash is necessary to begin trading. External variables such as events, news flow, and so on can also alter prices, making intraday trading even more difficult.
- Swing Trading:
Swing traders want to keep equities for more than one day in order to catch more price momentum. They attempt to forecast short-term variations that occur overnight. The primary distinction between day traders and swing traders is the time frame in which the stock is held. Most technical traders you may have met fall into this category.
Swing trading is identical to position trading, with the exception that the position is not held for more than a few months. Swing traders trade to capitalise on an underlying trend. The danger is significant but not as great as in intraday trading. To produce profits, one must have adequate expertise to detect a trend (uptrend or downtrend) and ride alongside it.
BTST (Buy Today Sell Tomorrow) trading is neither intraday nor swing trading. This method entails opening a trade in the final hour of the trading session and closing it in the first hour of the following day.
- Positional Trading:
The stock holding time period in positional trading is much longer, ranging from a few months to years. Positional traders anticipate substantial price swings over a longer time period in the hopes of making a large profit. To some extent, their trading decisions are based on both technical and fundamental analysis. As a result, any modest short-term movements are simply ignored in this stock trading technique.
Positional trading is a trading style that involves little monitoring or modification. This is best suited for professionals or persons who do not want to commit a lot of time to trade but yet want to make a respectable profit. Positional trading is less dangerous than swing trading since the time period is longer. This sort of deal is made based on a stock’s or company’s future potential.
- Technical Trading:
The majority of traders in the Indian stock market use technical analysis to determine price changes. Stock prices are supposed to be determined by demand and supply forces. In technical analysis, the market’s perspective is most important in deciding stock prices.
To become a technical trader, you must have a thorough understanding of stocks as well as reasonable research skills.
Because the abilities necessary to execute such transactions are considerable, technical trading is similar to intraday trading. Technical trading requires a good grasp of technical analysis and chart reading. This form of trade may involve a time frame ranging from hours to months. In technical trading, the risk is rather large because pattern breakouts frequently fail.
- Fundamental Trading:
Transactions in fundamental trading are based on news that directly affects a company’s stock price. Investors that adhere to the “buy and hold” philosophy are called “fundamentalists.” Predictions of stock prices are made with the firm, sector, and economic data in mind. Earnings, growth, and the quality of management are all key factors to consider when calculating the true worth of a company’s stock.
Trading on fundamentals is similar to buying shares of stock in that it straddles the line between the two activities. The fundamental investment follows the same characteristics as value investing, in which an individual buys shares of a company with the assumption that they are inexpensive at the moment and expects the firm to develop over time. Such deals can be made at any moment.
One can decide to continue engaging in a transaction if the underlying conditions are favourable. Such an investor will only sell their shares if they believe the stock price is artificially inflated or the firm has serious flaws.
- Momentum Trading:
Momentum traders attempt to profit in the stock market by riding the momentum of the equities. When a stock is rising in value, the goal is to sell it so that you may earn higher-than-average profits. When a stock’s price is falling, the strategy is to buy in bulk and sell it later when the price is rising.
Example:
Mr P has 7000 shares of X Private Limited, valued at Rs. 50 each. On April 1, 2019, he expects the NAV of such shares to rise. On the first day, he chooses to sell 3000 shares for Rs. 60. The remaining shares are then sold at a uniform pricing of Rs. 65.
As a result, his total profit from the deals is –
(5000 * 60) + (4000 * 65) – (7000 * 50) = Rs. 90,000
- Scalping:
Scalping, or micro-trading, is the act of continuously making small profits. The length of the transaction might be anywhere from a few seconds to several minutes. This stock market trading strategy requires a high level of skill and faith in the trader’s industry experience. Investors can make tens to hundreds of transactions every day using this method. They then make an effort to gain a profit by taking advantage of minute shifts in stock prices.
Impact Of Online Trading
The internet has substantially aided in the advancement of stock market trading. Securities are becoming more accessible and convenient for the average person. Individuals in India may now readily trade in the stock market via internet trading.
Mutual funds have also grown in popularity with the introduction of internet trading. Individuals may now immediately access MFs and other assets from a wide online reservoir of alternatives. Investors can now trade more actively and speculatively, enhancing their profit potential.
Benefits Of Online Trading
Online trading offers several advantages; here are the top seven:
- It Is Convenient
When it comes to online trading, all you need to do is establish a trading account via the internet and you’re ready to begin. As long as you have an internet connection, you are not limited by time or location. As a result, internet trading is quick and easy to access from anywhere. It saves time as well.
- It Is Cheaper
When it comes to online stock trading, the stock broker cost is cheaper than the commission imposed by traditional methods. If you trade in a high enough number of stocks, you may be able to negotiate your broker’s fees.
- You Can Keep Track Of Your Investments Anytime
Online trading allows you to purchase and sell shares at your leisure. It has sophisticated interfaces and allows investors to observe how their money is progressing throughout the day. You can calculate your profit or loss using your phone or PC.
- It Nearly Removes The Middleman
Online trading allows you to trade without having to communicate with your broker. This benefit, in addition to lowering total trading costs, eliminates trading hassles, making this service much more profitable.
- The Investor Has More Power
Online dealers can trade anytime they desire. In traditional trading, on the other hand, an investor may be trapped until he or she can contact their broker or the broker can place their order. Online trading enables near-instant transactions. Furthermore, investors may analyse all of their possibilities rather than relying on a broker to advise them on the best chances for their money. They may monitor their investments, make choices, and buy/sell shares without any outside intervention, providing them greater control over their investment.
- Quicker Transactions
Online banking is quick and easy. Transferring funds between accounts is virtually instantaneous, especially if the accounts are kept at the same financial institution. A single mouse click is all that is required to purchase or sell stocks. This allows for a faster exchange, which may also result in faster revenues.
- Better Financial Understanding
This is a secret benefit of internet trading that you should not overlook. You can forecast market behaviour and utilise it to predict an increase or decrease in stock price, much like in traditional stock trading. You will manage and be accountable for your own funds. You gain experience in analysing the market and distinguishing between excellent and bad investing possibilities over time. This financial expertise is extremely beneficial, and having it on your CV makes you more desirable to organisations wanting to fill a high-paying position in the finance department. So, while you’re making a quick profit, you’re also becoming financially savvy in both your work and personal life.
Conclusion
As previously said, there are several sorts of stock market trading. Trade in the ones that match your objectives and risk tolerance. Stock trading can be profitable, but it is a high-risk venture. As a result, it is recommended to begin trading under the supervision of stock brokers with years of expertise and technical understanding.
To learn more about the tools and tactics of stock trading, beginners can use the wealth of material accessible on stock markets, such as YouTube videos, articles, and blogs. Many applications like Kuvera now include AI-powered market analysis capabilities to help traders navigate this difficult business.
Learning the foundations of stock trading is still necessary for trading since nothing can substitute a reasonable and human grasp of ideas and tactics.
FAQs
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What Is The Distinction Between Stock Trading And Stock Investing?
The purpose of stock market trading is to buy and sell stocks for a short-term profit by focusing on share prices. Stock market investment, on the other hand, is the long-term purchase of stocks or shares from the stock market in order to produce profits.
Regarding the markets, stock market investment has a long-term perspective and is typically related to retirement plans. However, stock market trading entails using short-term strategies to increase daily, monthly, or quarterly earnings.
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What Are The Hazards Of Investing On The Stock Market Online?
Hardware, connection, website, mobile trading app, and other issues may arise. Because this is the time when hackers can access your data and misuse your trading account, access control security is critical. As a result, while investing online, the best plan is to use simple safety precautions.
If market developments are taken into account fast, there may be increased dangers involved with online stock market trading.
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How To Invest In Stocks With Kuvera?
Step 1: Download the Kuvera app and enter your PAN and Aadhaar number to complete your KYC.
Step 2: Select “Invest” and then “Stocks” from the “Home” page.
Step 3: Click the ‘All Stocks’ button to get a list of all the stocks accessible on Kuvera. Tap any investment to see its historical returns, current price, and other useful information.
Step 4: Choose the fund you want to buy and then select the “Buy” option.
Step 5: Choose a broker and enter the number of units you want to buy and start investing in, tracking & managing your investments seamlessly. You are finished in only minutes!
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