What Are The Types of Trading in Stock Market?

Types of trading in stock market

Trading is the fundamental idea that underpins all economic systems and financial transactions. Any society’s wheels of growth are governed by trade, which allows the accumulation of money. 

In the Indian financial market, different types of trading can take place. It is determined based on the type of goods dealt. The stock market is where stock trading takes place in numerous trading styles for the traders to choose from.

You have the option of selecting the trading style that best meets your needs. However, it is primarily determined by the financial objectives you wish to achieve.

There are a variety of trading strategies, all of them having their own set of market conditions and hazards. Some of the most commonly used technical trading strategies are Day Trading, Position Trading, Swing Trading, Trend Trading, Momentum Trading, Futures and Options Trading, Equity Trading, and Scalping. 

In India, The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two SEs that handle most of the stock market trading. BSE was brought in by 1875 and was the first for Asia and India. The National Stock Exchange was established in 1992 and traded in ’94. They use an identical trading system, trading hours, and settlement procedure.

9 Types of Stock Market Trading You Must Understand

Here are 9 types of trading strategies typically leveraged for the Indian stock markets:

1. Day Trading

The trader buys or sells the stock on the same day in intraday trading or day trading. Many traders make quick earnings or losses and close their trades before the stock market closes for the day.

In this type of trading, stocks can be held for a few hours, seconds, or even traded numerous times in a single day. Intraday trading is exceptionally volatile and necessitates quick decisions.

This aggressive trading technique is designed for active traders who can react quickly by closely monitoring stock market fluctuations. Intraday trading is not recommended for novices due to the high-risk levels and market volatility.

2. BTST (Buy Today Sell Tomorrow) 

BTST is a trading style that is neither intraday nor swing. This strategy entails taking a position in the final hour of a trading session and closing it out in the first hour of the next trading day. You can buy stocks now and sell them tomorrow under the BTST trading style, even if you don’t have a delivery. In addition, BTST has the advantage of not requiring you to pay any DP fees.

3. STBT (Sell Today Buy Tomorrow)

BTST (shouldn’t it be STBT??) is the polar opposite of this trading style. You can sell today and buy tomorrow on this site. However, this form of trading is not permitted in equities. In the derivatives market, anything is possible. The trader starts with a short sale (sells) in this strategy and then rolls over his temporary sell position to the next day and buys to close it out. In other words, the trader anticipates a gloomy market. As a result, the trader seizes the opportunity and profits. Simply put, a trader sells an asset class future and then repurchases it when the market opens the next day.

4. Scalping 

Active traders use scalping as one of their fastest methods. It basically comprises spotting and profiting from bid-ask spreads that are wider or narrower than usual due to short supply and demand imbalances.

5. Swing Trading

Swing trading is identical to position trading, except that the latter is only open for a few months at a time. Swing traders trade to profit from the underlying’s trend. The danger is considerable but not as great as intraday trading. To make money, one must have enough expertise to recognize a trend (uptrend or downtrend) and ride along with it.

Read more: Swing Trading Strategies

6. Momentum Trading

Momentum investing is a trading strategy in which investors buy and sell rising securities when they are about to cross higher peaks.

The goal is to work with volatility by finding short-term uptrend buying opportunities and then selling when the securities start to lose momentum. Then, the investor takes the cash, looks for the following short-term uptrend, and repeats the process.

7. Position Trading

It is a type that does not necessitate a lot of monitoring or adjustment. Best suited for professionals or those lacking time for trading but want profit. Positional trading is less dangerous than swing trading because of a longer period. This type of trade is made based on the stock’s or company’s future potential.

The holding period in positional trading is much longer, ranging from several months to years. Positional traders anticipate substantial price swings over a longer time frame in the hopes of making a significant profit.

To some extent, their trading decisions are based on both technical and fundamental analysis. So, short-term changes are just ignored. 

8. Delivery Trading 

The traders here maintain a long-term horizon. In other words, they buy and keep stocks for a longer length of time. It could last for a few days, weeks, or even months. The most challenging aspect of delivery trading is identifying equities with substantial price swings.

The traders look to acquire stocks after conducting a comprehensive investigation. They consider technical patterns and projections that point to the probability of significant price movement. 

When a trader identifies an emerging price movement, and spots accurate buy or sell signals, this trading technique is used to buy the relevant stocks and accordingly, when the trend is at its peak, the trader sells the stocks.

9. Margin Trading

Margin trading is when you borrow money from a brokerage business to make transactions. When trading on margin, investors first deposit cash, which serves as security for the loan, and then pay interest on the money they borrow regularly.

Also read: Types of Indian stock market participants

5 Types of Traders in the Stock Market 

Before moving on to the types of trading, it’s important to understand various stock traders having multifarious stock market trading strategies at their disposal. Whether you’re into online trading or offline share trading – it’s the different trading styles that can classify you under the following categories:

1. Day Trader 

A day trader buys or sells the stock on the same trading day in intraday or day trading. Day traders make quick earnings or losses and close their trades before the stock market finishes for the day.

Here, intraday stock or index graphs are studied and analyzed in real-time by the day traders. As a result, stocks can be held for a few hours, seconds, or even numerous times in a single day.

2. Swing Trader

Swing traders are those who want to keep stocks for more than one day to profit from the price momentum. Moreover, they aim to forecast nightly variations in the short term. The primary distinction between day traders and swing traders is the length of time they hold an asset. The vast majority of technical traders you may be familiar with fall into this category.

3. Technical Trader

Technical analysis is at the heart of all trading activity. Most traders use technical analysis to determine the Indian stock market price changes. This is because the stock price is supposed to be determined by supply and demand.

Therefore, the market’s perspective is crucial in deciding a stock’s price during technical analysis.

To become a technical trader, you must have a thorough understanding of equities and a reasonable level of research abilities.

4. Fundamental Trader

Such a trader looks at company-specific events to decide which stock to buy and when to acquire it. As opposed to short-term trading, fundamental trading is more closely associated with a buy-and-hold approach.

Here, the parameters are similar to value investing, where an individual purchases a firm’s shares based on the assumption that it is undervalued and expects to increase value over time. In such trades, there is no time factor coming into play. 

5. Long Term Trader

The focus of fundamental trading is company-specific events. Fundamentalists are long-term investors who adhere to the “buy and hold” philosophy.

Here, the trader forecasts the stock price using the company, industry, and financial information. Also, financial statements, earnings, growth, and management quality are studied to estimate intrinsic values.

How’s Trading Done in the Indian Exchanges? 

Trading is done through an open electronic limit order book, with the trading computer matching orders. There seem to be no market makers. The overall process is order-driven, which means that market orders are automatically matched with the best limit orders put by investors. As a result, both buyers and sellers maintain their anonymity.

The Securities and Exchange Board of India (SEBI), established in 1992 as an independent organization, is responsible for the stock market’s general development, regulation, and supervision. It carries an extensive authority to impose sanctions on market players in cases of a breach.

Key Takeaways

It’s vital to understand the Indian Stock Market in all simple ways possible. It is because different types of traders in the Indian Stock Market and their unique trading styles depend on factors like risks, advantages, and behaviors involved.

While trading strategies are many, it’s in your best interest to choose the one that suits your financial management and investment needs.

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