In today’s world, everyone wants to earn money by trading but the common mistake that everybody makes is they start trading without understanding the meaning properly. People don’t understand the risk factor, which type of trade they should begin with, the technical terminology, etc. Due to a lack of understanding of these factors beginner end up taking a big loss. So to avoid such loss, let’s start by explaining the meaning of trade in the stock market.
Meaning of Trade :
In stock markets “Trade” means the transfer of a stock or security in exchange for money from a seller to a buyer. To make a successful trade it required two parties to agree on a price for trading. On the agreed price the sellers sell the stock and buyers buy it. This completes the process of trade.
Now let’s talk about the types of trading options which we have. In total we will go one by one across the 6 types, which is as below :
- Delivery Trading
- Intraday Trading
- Margin Trading
- Short Sell
- Buy Today Sell Tomorrow (BTST)
- Sell Today Buy Tomorrow (STBT)
If you want to make some investments then this type of trading is for you. It is also known as “Position Trading“. In “Delivery Trading” you buy the stock and hold them for a longer period like weeks, months, or even for years. Here you need to do extensive research to identify the stock which will give a good yield after a while. You need to look at the historical trend of the stock, look at the current performance of the company, the amount of dept it has, and many other factors before making any decision. Depending on your research and study you can identify the point when you need to buy the stock and the point when you need to sell it.
If you are a beginner then it’s recommended to go for delivery trade.
Note: Once you get the delivery of stocks, you can hold it as long as possible.
Intraday Trading is a type of trading in which the trader buys the stock and sells it on the same day. At times some traders call it “Day trading“. So don’t get confused when you hear this word. In this type, you are allowed to hold your stock only till the time the market gets closed. You need to be active all time during the trade window to check which stock you can buy and get benefits by selling it back on the same day. So only if you are not active in the trade window then don’t choose Intraday.
If we talk about the earning, yes you can earn quickly in this type of trading but it has equal risk involved. You need to make quick decisions about your trade which are learned by experience. Therefore, if you are a beginner then you should not prefer this type of trade.
Margin Trading is commonly used while trading for Future and Options. In this type, you need to buy a minimum “LOT” of stocks in a single transaction. It involves buying and selling of stocks in a single session. Under this trade, you only need to pay the initial margin about which is calculated depending upon a certain percentage of the total trade value. These percentages are pre-determined by the Security and Exchange Board of India.
Short Sell is a type of trading in which the traders sell the stock and then buy it back before the end of the day. Depending on the trend and analysis speculates that the price of the stock is about to fall so, he “SELL” the stock at a higher price. And then will “BUY” it at a lower price. This is a popular trading type that is used by an experienced trader to earn money easily.
Buy Today Sell Tomorrow (BTST)
This is the type of trading where the trader buys the stock speculating that the price of the stock will increase the next day. So as the name suggests, the trader buys the shared today and sells them tomorrow to make the profit. This looks similar to the Delivery trade option but it’s different. As explained about in delivery trade you get the delivery of the stock in your account only after T+2 days but in BTST you don’t get the delivery.
The additional benefit of this type is that you don’t need to pay Depository Participant charges.
Sell Today Buy Tomorrow (STBT)
Sell Today Buy tomorrow is the opposite of BTST. Here you sell the stock today assuming its price to fall tomorrow. In this type, the trader looks at the falling market as an opportunity to earn a good profit.
Note: Such type of trading is only restricted to derivative markets.
These were the most commonly used types in the Indian Market. If you are a beginner then its recommend to understand all terminology and then enter the market for your trade. We will be coming up with other articles to explain the other areas of Share Market so stay tune. Also, you can let us know in the comment section about what you need to learn in upcoming articles.
If you don’t have a trading account then you can open your own account using this link: Zerodha
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