In simple words, trading means to buy something and then sell it when the price increases so that we can make profit. Today I will know walk you through what is trading in the stock market.
Trading is the buying of shares in the stock market at a good price and then selling the same shares at a more profitable price. We are not going to do technical jargon here. Instead we are going to use layman’s language to understand what exactly trading is.
After gathering complete information which includes fundamental analysis about a company and doing technical analysis, buying the company’s shares by looking at price pattern and then earning money as soon as the price jumps/plunges is called trading.
In trading, we hold the stock after buying for a fixed period of time like 1 minute, 1 hour and 6 months or more. The special thing for those trading in the stock market is that if a trader wants to invest in a company, then he does not need to take the details of the company, he has to pay attention only to the prices of the shares of that company with the help of technical and fundamental analysis.
Because in trading, traders are often concerned with the movement of the stock, because as soon as the stock prices increase, traders earn profit from their accumulated shares (money can also be earned by selling shares in the stock market, we’ll talk about that later).
Every trader who comes into trading can make money very quickly, but there is a certain risk in it because the value of each share here can fall and rise at any time. This is the reason 90 percent of all new traders leave trading in the first 3 months.
What are the types of trading?
There are many types of trading which are discussed below:
- Scalping Trading
- Intraday Trading AKA Day Trading
- Swing Trading
- Positional Trading
Let us discuss about these types of trading in detail.
The purpose of scalping trading is to make money in minutes. In scalping trading, trader buys a stock for a few minutes (or longer) and sells the stock when the price of the same share rises in the stock market or vice versa.When any trader does such trading, it is called scalping trading.
Traders who indulge in scalping trading trade more than once in a day, sometimes more than 10-20 trades.
It requires experience to make real profit.
Intraday trading is also known as day trading. In Intraday trading, traders buy and sell a stock on the same day. Simply, a trader buys a stock and sells it in the same day. In the end of trading session, he either books profit or loss.
This is called Intraday trading. The purpose of the day trading is to take advantage of the sudden jump or fall in the market so that the trader can make profits in time.
In Intraday trading, traders not necessarily make profit. They book small or big losses too. It direly demands proper money management or within few days traders may blow up his entire account.
I mentioned before 90 percent of the new traders leave trading within the few months. Day trading is the culprit behind that. So if you are going to opt trading as career then first learn it and then start doing it.
In trading, the most difficult part is Intraday trading, therefore it must be started after learning money management and trading set ups.
In swing trading, often the trader buys a share and holds the same for a week to 4 weeks and then sells it once the share reaches to desired price. The main goal of swing trading is to make profits as quickly as possible by taking advantage of the swings in the stock price. This type of trading is called swing trading. Keep in mind, just like other trading types equal risk of losing the money is involved.
Positional trading means that the trader buys a share and holds for a long period of time ranging from months to years. The purpose of positional trading is to accumulate wealth in the long run.
To do this, every trader has to take delivery of the shares to his demat account to hold the shares with him. Trader should have funds equal to the amount at which the trader has bought the shares. For example, if you have bought 100 shares of a company at the rate of ₹1000 per share then your trading account should have ₹100000 balance before you take the delivery.
Positional trading is one of the safest trading types. It is more dependent upon fundamental analysis than technical. But it also has risk. Because good or bad news in the stock market influence stock prices very badly. For example, in 2020, the stock market crashed very badly due to the corona virus pandemic.
Can we earn money from trading?
Often it’s found that new traders are curious to know that whether trading can help them earn regular income or not. Such questions are very common in newbie traders. So let us give you information about it in simple words.
Yes, it is possible for every person to earn money through trading but it is not so easy because as we have mentioned above that if a person wants to earn good money from every small movement of share price, first he has to learn fundamental and technical analysis and come up with appropriate capital.
If you would like to earn real money from trading then first should have to come up with large capital because to earn you first have to invest and investment requires funds.
Nowadays without having knowledge of technical analysis, it is impossible to survive in the stock market in the long run. Only then we will be able to understand the price pattern and when the time comes, we will be able to sell and buy the stock to earn money.
The most important thing in trading is to constantly learn from our mistakes because with learning, our experience will increase and eventually we will become a successful trader. Learning from mistakes and moving on from them is the key of a successful trader.
How do I open a trading account?
To open a trading account, first we have to go to a stockbroker. Stockbroker can easily open our trading account. In today’s time trading account can be opened online.
Here I have provided links of renowned stockbrokers in India by clicking on any of them you can open your demat account from home in just 15 minutes.
Best stockbrokers in India
- Zerodha: No. 1 discount stock broker in India (Recommended)
- Angel Broking: Especially recommended for trading from mobile.
After that, to sell and buy shares, it is necessary to deposit money in the trading account, for which we also need to link one of our bank accounts with the trading account.
It is not necessary to open a new bank account, if we have any old account in the bank, we can also link it.
What is a Stock Broker?
The work of connecting the stock exchange with the trader or investor is done by the stock broker. Stock broker acts as a connection between stock exchange.
The documents required to open a trading account are mentioned below:
- Pan card
- Passport size photo
- Proof of Permanent Address such as Aadhaar Card, Voter Card, Passport or Driving License or any similar document
- Proof of your income such as last 6 months bank statement, salary statement or any other similar document
- Bank account proof such as bank account statement, photograph of bank passbook, bank cheque etc.
What are the things to keep in mind while opening a trading account?
- First of all, every trader must get his mobile number linked with his trading account so that future transactions can be tracked.
- Whatever transactions are being done from your trading account, you should also keep a good eye on your email and your inbox.
- If someone is doing a transaction from your trading account without informing then you can spot that suspicious activity. Contact the authority and inform about the unauthorized activity. If you don’t do this then you may face difficulties in the future.
- You should take care of your documents on your own. Don’t let your broker handle your account.
- Also do not leave any signed slip or document with the broker.