What is Stock Trading? This question mostly haunts the new investors to the stock market. Today many small retailers and investors in the stock market do not understand the difference between stock trading and investment. If you also do not know the meaning of the word Stock trading you are at the right platform. So, in today's article, we will explain Stock trading and its basics to you in detail.
Stock market trading is similar to trading. Like we earn profit by buying and selling something. In the same way, profit is earned by buying and selling shares of companies instead of commodities in the stock market. The trading period is one year. This means that the stock has to be bought and sold within one year. If you sell the stock after one year, it is called investment. This is a kind of online-based business.
For instance, if a person is buying shares in the stock market, there will be some other person selling those shares. Now let's add this to our daily life. Suppose you bought an item for ? 100 from a wholesale store and later sold it to the customers after paying ? 120. If done on daily basis, then it is called trading. The same is the case with the stock market as well. You buy the share and sell the purchased share after the price increases within one year. So, it is called Stock Market Trading.
Stock Trading is said to be quite risky because, in this, no one knows what the share price movement will be after some time. If the news related to the stock is good, there will be a rise in the share price. On the other hand, if the information related to the stock is bad, then there can be a slowdown in the share price.
A trading account connects an investor's Demat account and bank account. You can place buy orders through your trading account. Your transaction goes to the stock exchange for processing. The allotted number of shares is credited to your Demat account on execution. The proportionate amount payable is deducted from the bank account.
When you place the order to sell equity shares, the process is reversed. You place a sell order for a certain number of shares from your trading account. The transaction is submitted for processing at the respective stock exchange. Once the order is executed, the number of selected shares is debited from your Demat account. A proportionate amount gets deposited in your bank account.
In stock trading, shares are bought for the short term. Whereas in investment, shares are bought for a long time.
- Knowledge of fundamental and technical analysis is essential in trading. At the same time, information about fundamental analysis should be obtained in investment.
- The period of trading is up to 1 year. In contrast, the investment period is more than one year.
- People doing stock trading are called stock traders. Where do the people who make investments go to the investors?
- Trading is done to earn short-term profits, whereas investment is done to earn long-term profits.
Trading in the stock market is divided into four parts.
What is scalping trading?
Scalping Trading The trade is to be traded for a few seconds or minutes. This means that those traders buy and sell shares only for a few seconds or minutes. Such traders are called scalpers. Let me tell you that scalping trading is the riskiest.
What is Intraday Trading?
Intraday Trading The trade that is to be traded for one day. This means that those traders buy shares after opening the market and sell the stock before the market closes. Such traders are called intraday traders. But, first, let me tell you that intraday trading is slightly less risky than scalping trading.
What is swing trading?
Swing Trading is the trade that buys and sells shares for a few days. This means that those traders sell the shares after buying for weeks. In this, the trader does not have to look at the charts throughout the day. Therefore, it is better for those people (jobs, students, etc.) who cannot devote their full day to trading.
What is Positional Trading?
Positional trading A trade that is held for a few months. This is done to capture the long-term movement of the market. To make a good profit. The daily up-down of the stock market does not affect them much. Therefore, it is less risky than all other tradings.
The stock market is increasing day by day. With the increase in the trading industry, employment opportunities have also increased. People from various backgrounds are now showing interest in stock market trading. In order to be a full-time trader, one should have basic knowledge of Financial Status, Fundamental Analysis, and Technical Analysis. In the olden days, stock exchanges trade with paper-based physical share certificates. However, almost 100% of trading is done through technology and only in electronic form using state-of-the-art software in the modern era. Here are the steps to follow while doing stock trading-
1) Open a Demat account:
If you are interested in entering the stock market as a trader or investor, you must open a Demat or brokerage account. Without a Demat account, a person cannot trade in the stock market. It works like a bank account where you hold money to use for trading. The securities you buy are maintained in the Demat account electronically.
2) Overviewing the stock quotes:
Stock Market is Unpredictable. The price of a stock moves based on any news, fundamentals, technical analysis, etc. Therefore, as an investor or trader, you can enhance your knowledge of stocks and stock markets by adequately analyzing these aspects. In addition, this analysis will help you to understand the right price to enter or exit a trade.
3) Fundamental and technical knowledge of stock:
Analyzing the fundamental and technical analyses of the stock before starting the trading. This analysis evaluates security by measuring its intrinsic value. It considers various dynamics, including-
- Assets and liabilities.
However, Technical analysis evaluates the stock based on the stock's past price and volume chart to predict future potential.
4) Bids and asks:
A bid price reflects the maximum price you are willing to pay to buy a stock. At the same time, the asking price is just the opposite. Ask price reflects the minimum price at which the seller is willing to sell the stock. Therefore, it is important to decide on the correct bid and ask price to ensure a profitable trade.
5) Learn to stop the loss:
Volatility is an implicit characteristic of the share market. So, a beginner needs to understand how to prevent heavy loss. While executing a trade, you need to set a stop-loss price to minimize the loss. Failure to put a stop loss may damage your capital heavily.
6) Take expert to advise:
The market is unpredictable. Nobody can accurately predict a stock price. Therefore, it is always advisable to take advice from an expert. It helps beginners in making the right trading decision. It guides you to make the right choice.
7) Start with safer stocks:
A huge loss, in the beginning, may bring your confidence down. An informed decision helps in dealing with the less volatile stocks. Initially, it may give you a slow start. But this strategy will help you do stock trading better and is likely to sustain a good performance even in adverse conditions.
Invest Money: The best way to save money for the long term is through efficient use of the market, even if you have short-term profits in mind. If you are into investing for the long run, stock trading can make dealing in shares very easy. Also, a person can create a direct debit, feeding money from within bank accounts onto the stock market trading platform. This short circuits the trading process and ensures potency in the long run.
It helps in earning money: Making money through online trading is extremely simple. Always concentrate on finding penny stocks that will give you good returns on your cash because volatility ensures that they can go through the roof and remain well below certain levels at different times. Expect to make healthy profits offline if you can leverage the risk effectively while trading online.
Cut down on Costs: A benefit of online stock market trading is that costs can be reduced. While brokers make a living through stocks and bring vitality into trading through their years of experience, they can also be extremely costly. Not only do they charge a brokerage fee, but many brokers also take a percentage of the earnings; online brokerage houses charge a flat rate for every transaction. This means trading at more reasonable rates is possible if you go online.
Complete Freedom: Online stock market trading ensures complete freedom to make investments in any stock one wants. Traders can make their own decisions and complete their research.
Reduces Time Barriers: Another advantage of stock trading is that any restrictions on time barriers are eliminated. In addition, trading is possible at any time of the day or night, thanks to online platforms.
Set Your Investment Limits: Online stock market trading allows you to be the master of your fate. Any investment thresholds do not limit you, and you can go as high or as low as you want while trading.
Below mentioned are the disadvantages of Stock Trading
- Online trading is riskier In adequate Broker Advice
- A uniform decision can be troublesome.
- While trading in the virtual world, you can lose money in real.
First of all, you should select a stockbroker or firm. Also, make sure that the broker is good and will take your order on time. Remember that time matters a lot in the stock market. Even a few minutes can change the market price of the stock. For this reason, make sure you choose a good broker.
- Compare Brokerage Rates For your information, let us tell you that each broker charges you a specific fee for processing your order. A broker may charge more or less. That's why it is extremely important to compare brokerage rates.
- Some offer discounts based on the volume of trades held. Keep all these things in mind before opening an account. However, keep in mind that it is not necessary to choose the broker with the lowest fees. Often good quality brokerage services provided may require higher-than-average fees.
- After that contact, the brokerage firm or broker inquire about the account opening process. Mostly the firm sends a representative to your home and the account opening form and Know Your Customer (KYC) form.
- Fill out both these forms carefully and submit them along with two documents, which act as your identity and address proof.
- Verification of your application will be done either in person or over the phone, where you will be asked to reveal your details.
- Once processed, you will be given your trading account details. With the help of this, you will now be able to do business in the stock market.
Stock trading has more advantages than disadvantages. But what makes stock trading a perfect opportunity for making profits? It is the unlimited freedom and fewer restrictions than stock trading platforms offer which make them the preferred choice of investors and traders at different levels of evolution. But, if we talk about online trading, it will grow as the internet transforms into an advanced communication system, and this will ensure that such platforms will go from strength to strength.