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Stock Trading
Meaning of Trading
Trading is essentially the exchange of goods
and services between two entities. In this
context, the entities are investors/traders who
are exchanging stocks of different companies. Open a free demat account
Stock trading takes place in the stock market.
Set it up in just 2 minutes to start investing in the
With online trading and investing, stock stock market
markets have become accessible to a larger
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section of people
History of Trading
Stocks
Trade has existed for as long as human
National Stock Exchange
civilization, i.e., the agricultural revolution. The
Bombay Stock Exchange
form of trading, however, has varied across
different societies. Primarily due to isolated
What is SENSEX
human communities, which did not allow the
Stock Exchange
unification into a single system. In the past,
however, a form of trading that was prevalent Multibagger Stocks
across different societies was the barter
Penny Stocks
system, where services and goods were traded
Stock Broker
in exchange for other services and goods.
Stock Trading
However, the barter system was found
Nifty
inconvenient given the lack of any basic
standard for measuring the value of products. Mid Cap Stocks
This inconvenience forged the way for money,
Small Cap Stocks
which acted as a standard against which the
Large Cap Stocks
values of all products are measured. This
invention triggered a chain of economic and
Blue Chip Stocks or Companies
financial developments such as the introduction
Stock Market Timings
of the credit facility, share trading, etc.
NSE Holidays
Stock trading came into existence with the
BSE Holidays
formation of joint-stock companies in Europe
Intraday Trading
and played an instrumental role in European
imperialism. Informal stock markets started
Equity Share Capital
mushrooming in various European cities. The
Growth Stocks
first joint-stock company to publically trade its
shares was the Dutch East India Company
Stock Market Indices
which released its shares through the
Amsterdam Stock Exchange.
BSE SENSEX
BSE 100
After the success of joint-stock companies in
fostering economic development along with
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geographical expansion, those were made a
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mainstay of the financial world. The first
exchange for online trading in India and Asia NIFTY MIDCAP 100
was the Bombay Stock Exchange which was
NIFTY BANK
established in 1875. BSE, along with the
NIFTY NEXT 50
National Stock Exchange in India, are the two
main houses where stock market trading takes
place.
Types of Trading in Stock
Market
Primarily, there are five types of share trading.
These are –
1) Day Trading
This form of trade involves purchasing and
selling stocks in a single day. A single day in
stock market terms means 9:15 am to 3:30 pm
on a weekday (barring market holidays). In the
case of day trading, individuals hold stocks for a
few minutes or hours.
A trader involved in such trade needs to close
his/her transactions prior to the day’s market
closure. It is popular for capitalizing on small-
scale fluctuations in NAV of stocks.
Day trading requires proficiency in market
matters, a thorough understanding of market
volatility, and keen sense regarding the up and
down in stock values. Therefore, it is performed
mostly by experienced investors or traders.
2) Scalping
It is also known as micro-trading. Scalping and
day-trading are both subsets of intraday
trading. Scalping involves reaping small profits
repeatedly ranging from a dozen to a hundred
profits in a single market day.
However, every transaction does not yield
profits, and in some cases a trader’s gross
losses might exceed the gains. The holding
period of securities, in this case, is shorter
compared to day-trading, i.e. individuals hold
stocks spanning a maximum of a few minutes.
This feature allows for the frequency of
transactions. Similar to day-trading, scalping
requires market experience, proficiency,
awareness of market fluctuations, and prompt
transactions.
3) Swing Trading
This style of stock market trading is used to
capitalise on the short-term stock trends and
patterns. Swing trading is used to earn gains
from stock within a few days of purchasing it;
ideally one to seven days. Traders technically
analyse the stocks to gauge the movement
patterns they are following for proper execution
of their investment objectives.
4) Momentum Trading
In case of momentum trading, a trader exploits
a stock’s momentum, i.e. a substantial value
movement of stock, either upwards or
downwards. A trader tries to capitalise on such
momentum by identifying the stocks that are
either breaking out or will break out.
In case of upward momentum, the trader sells
the stocks he/she is holding, thus yielding
higher than average returns. In case of
downward movement, the trader purchases a
considerable volume of stocks to sell when its
price increases.
Example:
Mr A holds 7000 shares of S Private Limited at
Rs. 50 per share. On 1st April 2019, he sees the
NAV of such shares showing upward
momentum. He decides to sell 3000 shares at
Rs. 60 on the first day. After that, He sells the
remaining shares at a uniform rate of Rs. 65.
Therefore, his overall profit from the
transactions is –
Rs. {(3000 * 60) + (4000 * 65)} – (7000 * 50) or,
Rs. 90,000
5) Position Trading
Position traders hold securities for months
aiming to capitalise on the long-term potential
of stocks rather than short-term price
movements. This style of trade is ideal for
individuals who are not market professionals or
regular participants of the market.
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Current Impact of Online
Trading
The internet has significantly contributed to
elevating stock market trading. It has made
securities more accessible and convenient to
the layman. An individual can now easily trade
in the stock market through online trading in
India.
Mutual Funds have also gained significant
popularity since the advent of online trading.
Individuals can now directly access mutual
funds and other securities from a vast reservoir
of options available online. Investors can now
trade more actively and speculatively, thus,
increasing their chances of profitability.
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FAQs
What is the meaning of trade?
What is stock market trading?
What is online trading?
How to trade stocks?
How many types of trading are in the
stock market?
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