In the stock market, one can trade in numerous ways, including intraday trading, swing trading, positional trading, etc. Each form has risk, advantages, and strategy levels attached to it. Trading types make it easier for investors to choose the type that suits them according to their level of risk and financial goals. There are many trading styles, and understanding the types of trading in the Indian share market is essential before making investment decisions.
What is Trading in Share Market?
Trading in the share market refers to buying and selling stocks, commodities, or other securities for profit. It is not investing because investing is the creation of long-term wealth. Trading, on the other hand, is the process of making short-term profits by way of price movements. Traders use market trends, technical analysis, and other strategies to maximize their profits.
Types of Trading in Share Market
Types of trades in share markets vary in the period, strategy, and risk levels. Traders use different styles of trading depending on their financial goals and experience.
Intraday Trading
A type of trade wherein stocks are sold and bought the same day is known as intraday, also called day trading, and focuses on exploiting tiny price movements with the objective of making a lot of money.
- Advantages of Intraday Trading: No overnight risk as all trades are closed the same day. Higher profit potential due to frequent trades. Less capital is required because there is available leverage.
- Disadvantages of Intraday Trading: High risk because of market volatility. It demands full-time monitoring of the market. Leverage can magnify losses.
Swing Trading
Swing trading is the holding of equities for some days to weeks to take advantage of price movements at short- to medium-term levels. In the setting of entry and exit points, the trader relies on the technical analysis tool, chart pattern, and momentum indicators.
- Advantages of Swing Trading: Less nervousness compared to intraday trading. It is suitable for people who cannot monitor the markets all day long. Moderate risk as compared to intraday trading.
- Disadvantages of Swing Trading: Over-night risk since the position is held for several days. Technical analysis skill is required. Highly volatile stocks cannot be traded with this style.
Positional Trading
Positional trading is a positional trading strategy where traders hold stocks for weeks to months based on their fundamental analysis. Here, they focus on economic trends, company performances, and what happens in the markets in order to make that decision and have the maximum possible return.
- Advantages of Positional Trading: Lower noise and volatility of the market. Higher potential returns than in short-term trades. No continuous monitoring of the market is required.
- Disadvantages of Positional Trading: Much capital is required. The time to profit is much more. Returns might be affected during market crashes.
Scalping
Scalping is one of the ultra-short-term trading methods where the speculator conducts multiple small trades within seconds to minutes to earn quick profit money. Therefore, scalping relies on fast execution, accuracy and liquidity in the market to capitalize on minute price movements.
- Advantages of Scalping: Scalping has very high-profit potential in a very short time. Works well with liquid stocks. Reduces exposure to risks of the marketplace.
- Disadvantages of Scalping: It requires advanced trading skills and speed. It charges high brokerage and transaction costs. Chances of frequent small losses piling up.
Arbitrage Trading
Arbitrage trading is buying a stock in one market and selling it in another at a higher price to take advantage of the price difference. Traders take advantage of pricing inefficiencies across different exchanges to generate risk-free returns.
- Advantages of Arbitrage Trading: Low-risk trade because the price difference is assured. Quick profits with minimal market exposure. Highly liquid markets work well in this type of trading.
- Disadvantages of Arbitrage Trading: Arbitrage trading requires advanced trading technology. Profits are small, requiring large trade volumes. It may be subject to regulatory restrictions.
Options Trading
Options trading offers traders the right to buy or sell stocks at a specified price in the future without actually holding the stocks. It allows one to hedge, speculate, or make money on positions.
- Advantages of Options Trading: It entails limited risk if strategies are correctly applied. It is suitable for hedging against market downturns. Profit generation in both upward and downward markets.
- Disadvantages of Options Trading: Requires an in-depth knowledge of derivatives. Expiration dates result in a loss if options are worthless at expiration. A highly volatile market could quickly drop the price of options.
Types of Trading FAQs
1. What are the types of trading in share market?
The main types of trading in the share market are intraday trading, swing trading, positional trading, scalping, arbitrage trading, options trading, and BTST/STBT.
2. Which one is best for a newcomer?
A newcomer should first go with positional trading or swing trading because these trades require less market monitoring and carry less risk than intraday or scalping trading does.
3. What is the difference between trading and investing?
Trading focuses on short-term price movements, whereas investing focuses on the long-term wealth creation by companies through growth and dividends.
4. How to start trading in the Indian share market?
A demat and trading account, a good broker, market knowledge, and the types of trading in the Indian share market are required.
5. Is trading risky in the share market?
Yes, trading entails market risks. However, research and proper management of risk, along with an understanding of trading strategies, help minimize losses.
