Stock trading refers to buying and selling financial securities, like equities of companies. It is an attempt to make profits by analyzing stock prices in the market. Traders closely monitor the price fluctuations in the short or long haul.
Stock trading can bring significant and quick gains for individuals making prudent decisions based on market analysis. It carries the risk of substantial losses. A company can rise and offer you a good amount of returns, but it can also fall easily. Therefore, low-risk profile individuals do not get involved in short-term stock trading. Individuals should not take risks for the money they need. Trade with spare money.
Types of Stock Trading:
Traders need to consider trending analysis and technical sentiments to take up trading. They use different strategies that rely on timing the market to benefit from short-term events at the company, national or international level that lead to profits. Such analysis requirements differ in different types of trading styles.
- Intraday Trading: Traders take multiple positions in a trading session. They need to necessarily exit the positions before closing the market. It is an active trading style and ideal for individuals who can devote full time to online trading. In this type of active trading, traders place 10+ trades every month. They are aimed at gaining in the next few minutes or hours based on daily price fluctuations.
- Position Trading: Traders take more time to analyze the market and trade as per their comfort in position trading. It is their choice to hold the stocks for a longer time. They have enough time to understand the price fluctuations and technical trends. They can hold the stocks for months, weeks, or days.
- Swing Trading: Swing traders attempt to grab short- to profitable medium-term opportunities in stocks or other financial instruments over a day, a few days, or several weeks. Swing trading involves technical analysis primarily to grab trading opportunities.
- Long-term Trading: Traders can hold the stock for years. Their decisions are based on fundamental analysis. They gain with the company’s growth. The company you invest in provides dividends and bonuses.
Before you dive into the stock market, you should know what the share market is and how it works for stock trading.
Segments of Share Market:
The share market is the platform that facilitates companies and investors in the primary and secondary markets.
- Primary Market: Corporations issue their equity shares through IPO in the primary share market. It is the first issue of the corporation for the general public to raise funds for further growth prospects.
- Secondary Market: Company’s shares issued through IPO get listed in the secondary market that can be traded on public stock exchanges.
- OTC Market: Over-the-counter (OTC) is another part of the market where you can trade unlisted shares. It is the direct dealings between buyers and sellers without any involvement of the stock exchange.
Thus, stock trading allows you to buy or sell securities listed in the secondary market under the regulatory framework.
How Stock Trading Works in The Share Market:
Stock exchanges facilitate stock trading in the share market. The market is run through a set of stock exchanges. Stock exchanges facilitate transactions to trade financial assets.
Stock exchanges are necessary for the price discovery mechanism in the share market. They provide liquidity to the market.
Most shares are listed on major stock exchanges, like BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). Their indexes (Sensex and Nifty) help investors to make stock investing and trading decisions. An index is the mirror of the company’s position in the market currently.
How to Start Stock Trading:
Individuals can not directly participate in the share market. Look at the demat account maintenance charges and brokerage charges of trading accounts while choosing a stockbroker.
They need to open a demat and trading account with a stockbroker to connect with the stock exchange. You can trade stocks or other financial assets, like bonds, futures and options, commodities, currencies, and mutual funds, in the stock market with the help of stock brokers registered with the SEBI (Securities and Exchange Board of India).