Stock market trading has proved to be a great source of income for many. This article outlines the history of stock trading and the various trading methods used in the stock market.
What is Stock Market Trading?
Simply put, trading is exchanging products and services amongst various entities. Any business system in any community relies majorly on trading. Wealth generation is essential to progress, and a market is an area where trading is carried out.
The products and services exchanged between various entities define the market. The stock market, for instance, is the place where stocks of business or commercial organizations are traded. Therefore, if an individual wish to invest in businesses to generate profit, they must learn about what stock market trading is.
A stock market makes it easier to acquire, sell, and issue shares of publicly traded businesses. Both physical and digital transactions for stocks are possible on the stock market. Therefore, individuals who wish to invest in the stock market must learn more about the history and origin of the stock market. The history of stock market trading has been discussed below:
History of Stock Market Trading
Trade has long been an integral aspect of human civilization. Earlier, the only trading method was a barter system wherein different commodities and services were exchanged (or bartered) for one another. However, this system was discontinued since it was discovered to be an unpredictable transaction because there was no standard dictating the value of goods or services.
Unknowingly, this prepared the path for currency, a uniform indicator of the worth of goods and services. Moreover, this led to several financial and economic innovations, including the availability of credit and the trading of stocks.
As a result of European imperialism, stock market trading was developed to deal with business stocks. In addition, joint stock firms were established to facilitate the growth of European imperialism. As a result, stock exchanges spread all over Europe.
The Dutch East India Company, which openly traded its shares on the Amsterdam Stock Exchange, was the leading joint-stock company. Following this, exchanges started setting up everywhere around the world.
In 1875, the Bombay Stock Exchange (BSE) was established in India. The two primary Indian trading venues nowadays are the BSE and NSE (National Stock Exchange), both of which offer online stock market trading facilities.
Based on their financial objectives, stock trading preferences, and the time they plan to hold their investments, stock market traders frequently select one of the many available stock market trading approaches. The various types of trading in the stock market have been mentioned below:
Various Types of Trading in the Stock Market
There are five primary categories of investment strategies used in the stock markets.
Scalping:
Also known as micro-trading, scalping includes consistently generating modest returns. The duration of the trade might range from seconds to minutes. Investors with sufficient expertise and confidence in their industry experience can use this stock market trading approach because it demands expertise and experience. Using this strategy, investors can execute ten to a few hundred trades daily. Then, they attempt to turn a profit by leveraging minor fluctuations in stock prices.
Day Trading:
Day trading does not require retaining stocks overnight; instead, it refers to buying and selling stocks on the same day. To describe it simply, a day trader terminates all of their holdings before the market's closure. Investors may thus retain investments here for a brief period or for a long time. Investors may require strict self-control, a foolproof plan, and sufficient funds to sustain significant losses.
Momentum Trading:
This type of stock market trading involves "breakout" stocks or stock prices that are moving outside of predetermined levels of support or opposition and doing so with greater intensity. So, after finding such a stock, an investor can leverage either the stock's upward or downward trajectory.
Based on how quickly the stock moves and how frequently it changes its direction, stock market traders may hold their positions for a few hours up to several days in this form of investing.
Swing Trading:
This is comparable to embracing a temporary movement in stock prices. Therefore, it seeks to identify equity gains within one to seven days. Swing traders deploy fundamental analysis to identify equities with short-term price momentum.
Of course, they are more concerned about the stock's price trends and movements than about the stock's basics and inherent value. Investors maintain their positions for three to seven days depending on the fluctuation in the stock price.
Position Trading:
Position trading involves investing in a stock over a lengthy period. Investors who choose this strategy consequently gamble on whether the present trend will last significantly longer than it would with momentum or swing trading.
Investors profit significantly because they have a long-term view. Additionally, they don't worry about short-term volatility since they think things will be sorted out through their long-term investing objective.
Stock Market Trading Time in India
The stock market opens for regular trading at 9:15 AM and closes at 3:30 PM. Before 09:15 AM, there is a pre-opening period, and after 3:30 PM, there is a post-closing session. The mentioned stock market trading time would be applicable regardless of whether a person intends to trade on the BSE or the NSE, India's two leading stock exchanges.
Conclusion
Trading on the stock market does not always ensure great returns. There is also a good deal of risk associated with stock market trading. However, if done methodically after learning about the fundamentals and complicated workings of the stock market and using the methodology that best suits the investment objective, it may be a fantastic way to build wealth over the long run.
Therefore, it is advised that people interested in investing in the stock market should learn how to trade in the stock market before dealing with stocks.
FAQs
What is the difference between stock market trading and stock market investing?
The goal of stock market trading is to acquire and sell stocks for some income in the short term, focusing on share prices. On the other hand, buying equities or shares from the stock market for the long term to generate profits is the goal of stock market investing.
Regarding the markets, stock market investing has a long-term perspective and frequently pertains to retirement plans. However, stock market trading includes employing short-term approaches to boost daily, monthly, or quarterly profits.
What are the risks involved with online stock market trading?
You may experience hardware, connectivity, website, mobile trading app challenges, etc. Access control security is crucial because this is the period when hackers can access your data and exploit your trading account. Therefore, the best strategy is simple safety measures when trading online.
If the updates in the market are considered quickly, there can be additional risks associated with online stock market trading.
How to open an online stock market trading account?
You would have to follow these steps to open an online stock market trading account in India:
- First, start the application process by filling out the form.
- Provide all the necessary details, including PAN, bank details, etc.
- Upload the required documents.
- E-sign the application form.
- Submit your application and start investing in the stock market online.
What is required in stock market trading?
Obtaining a Demat account and trading account is the first step in investing or trading in the stock market. Direct trading on the stock exchange is not allowed.
You may open a Demat account and trading account through a stockbroker registered with the stock exchange and SEBI (Securities and Exchange Board of India). A stock market trading account enables you to conduct transactions on the stock exchange, whereas a Demat account store shares in digital format.
To start trading on the stock market, you need both. To open these accounts, you need a PAN card, a bank account, and documentation confirming your identification and residence.
How are share prices determined in stock market trading?
A company's share price is determined by market supply and demand once it becomes public and its shares begin trading on a stock exchange. The price will rise if there is a significant demand for its shares. Conversely, stock sellers can decrease the price of the shares if the company's prospects for future expansion appear uncertain. This is how share prices are determined in stock market trading.