In simple words, trading refers to the buying and selling of stocks, bonds, commodities, currencies, or other financial securities for a short period with the goal of making a profit. The main difference between trading and traditional investing is the former’s short-term approach compared to the long-term horizon of the latter.
In words we can say trading is the exchange of goods and services
It is the underlying principle of all economic systems and financial exchanges. Any culture’s capacity for growth depends on trade. A market is where all types of commerce transpire, including the stock market for share trading.
Markets comprise two categories: organised/structured and unstructured. Every business operating in the market must abide by a set of rules and regulations, and there is often a regulatory body to monitor this compliance. Unorganised markets do not have stringent rules and regulations; even if they did, there is no obligatory compliance. The procedure has become more convenient with online trading and investment, as most markets are mimicked on the internet.
Financial markets facilitate trading stocks, mutual funds, commodities and more. You can gain exposure to markets such as the S&P 500 and the FTSE 100, international currencies such as the US Dollar and the Japanese Yen, and even commodities such as lean hogs and cattle.
To get started, investors need to sign up for a platform that provides access to these markets. These platforms include several financial markets that allow you to determine whether an asset’s price will grow or fall. Additionally, these platforms share a beginner’s guide to trading to help users get acquainted.
There are over 15,000 to 17,000 financial assets and marketplaces to trade, including:
- Shares/stocks
- Indices
- Forex
- ETFs
- Bonds
- Commodities/comex
- Interest rates
- IPOs
- Themes
The goal of trading remains the same: to turn a profit, regardless of the trading instrument. You will make a profit if you acquire an instrument for less than its worth when you sell it. However, if you sell it for less, you will lose money. It is crucial to remember that trading is inherently risky. You may lose more than you anticipate if you do not take the necessary risk management precautions.
Types of Trading
There are various types of trading, including the following.
- Scalping
Also known as “micro-trading”, day trading and scalping are subgroups of intraday trading. Scalping entails reaping modest earnings frequently, with rewards ranging from a dozen to a hundred in a single market day. However, not every transaction results in profits.
In certain situations, a trader’s total losses may surpass their winnings. In this scenario, asset holding times are shorter than day trading, with investors only holding stocks for a few minutes at most. This feature enables transaction frequency. Scalping, like day trading, necessitates market expertise, proficiency, market knowledge, and rapid transactions.
- Day Trading
This type of trading includes buying and selling equities on the same day. In day trading, individuals own equities for a few minutes or hours. Traders engaging in such activity must complete their transactions before the market closes for the day.
It is the most popular trading type for profiting from small-scale variations in stock NAV. Day trading necessitates market knowledge, a complete awareness of market volatility, and a sharp feel for the ups and downs in stock prices. As a result, it is generally carried out by professional investors or traders.
- Swing Trading
This trade helps investors profit from short-term stock trends within a few days of acquiring them. Swing traders typically use technical analysis (charts, patterns, and so on) to forecast market direction.
- Momentum Trading
In momentum trading, a trader takes advantage of a stock’s momentum. Stock momentum is a significant value movement of the stock, either upwards or downwards. A trader chooses stocks that are breaking out or will break out to capitalise on such momentum.
During an upward trend, the trader sells the equities they hold, resulting in higher-than-average gains. When the market falls, the trader buys many stocks to sell when the price rises.
For example, an investor owns 9000 shares of Shiveg Pvt Ltd for Rs. 40 per share. They anticipate that the NAV of the shares will increase on April 1, 2022. On the first day, they decide to sell 3000 shares for Rs. 80. The remaining shares are then sold at a uniform pricing of Rs. 65.
As a result, their total profit from the deals is – Rs. {(5000 * 80) + (4000 * 65)} – (9000 * 40)= Rs. 300,000
- Positional Trading
Position traders hold shares for months, hoping to profit from equities’ long-term potential rather than short-term market changes. This type of trading is appropriate for people who are not market specialists or frequent market participants.