You can buy or sell stocks as a form of investment. That's called equity trading, which takes place on the stock market through stock exchanges.
The stocks are listed and traded on the stock exchange platforms established by the regulatory authority.
The stock exchange brings together the buyers and sellers in an open and regulated platform and facilitates trading. The stock exchange ensures smooth clearing and settlement between buyers and sellers.
Stock exchanges will act as a platform where many buyers and sellers can interact, trade, and settle transactions. The trading may be either through market orders or limit orders.
Is Equity Trading Risky?
It's never easy to avoid risk when investing in the equity market. You can reduce some of the risks, though, by limiting your investments to specific sectors of the market.
However, suppose you understand that equities are volatile, and there will be ups and downs in your investment portfolio while investing in equities.
In that case, it becomes easier for you to handle these fluctuations as you would have already prepared yourself mentally for such conditions.
Equity Trading Strategies
When stock prices are low, buy them; when they are high, sell them.
The strategy is classified into two sub strategies:
Short Term: These are trades that last from minutes to several months. Investors make money on the price movements of stocks, commodities, and indices during this period by buying and selling them. This strategy is called speculation.
Long-term: Investors buy stocks and hold them for many years, hoping to benefit from capital appreciation in the future, also known as investing, wherein investors want to make money through dividends over the long term.
Types of Equity Trading in India
Thousands of stocks are traded in the Indian stock market every day. However, not all of them are suitable for stock traders or investors. The key is to identify ideal stocks for you and then trade in those stocks only.
Here are some types of equity trading strategies:
Cash Market/Spot Market:
It is a place where stocks, bonds, and other securities can be bought and sold right away. In other words, it is a marketplace where buyers and sellers meet to trade immediately and receive delivery of the securities within two days.
This type of trading is also known as cash segment trading, Equity Delivery Trading, or simply delivery-based trading.
A futures contract is an agreement between two parties that obligates a seller through the exchange to sell and deliver a commodity at a set price on a future date to the buyer who holds the contract through the exchange.
There is no actual delivery of shares in this case since it's just an agreement between the buyer and seller, and it's settled in cash by marking up the account with profits or losses in cash flow from holding open positions overnight.
It is a marketplace that allows participants to trade options contracts for various underlying assets like commodities, indices, currency, etc.
In options trading, the buyer pays a premium to the seller for buying this right but not an obligation to buy or sell. There are two types of options: call option and put option.
Call Option: The purchaser of the call option has the right but not the obligation to buy an underlying asset at a given price on or before a given date.
Put Option: The purchaser of a put option has the right but not the obligation to sell an underlying asset at a given price on or before a given date.
Advantages of Equity Trading in India
Following are some advantages of equity trading:
High returns: If done correctly, equity trading can prove to be a long-term investment with high returns. It may take some time to reap high stock market trading returns, but your investments can give great profits over time with patience and learning.
Liquidity: You can liquidate the shares you own anytime you want during trading hours, unlike other investments like real estate, where selling property takes time and involves many layers of procedures.
Diversification: Stocks of different companies listed on the exchange can be bought by an investor, thus making room for diversification of assets and reducing risk levels.
Control: Equity trading allows you to control your investments and manage them according to your preferences.
Must-Have Things to Do Equity Trading in India
There are some disadvantages of equity trading are as follows:-
- If a person wants to buy a share, he has to first open demat account and know the stock market.
- A person needs to know the market position and then only invest in it. Because if he invests in the wrong position, then he will face losses.
- The person needs to learn about the technical analysis and fundamental analysis of the share market.
- If a person has stock in a particular company and that company faces loss, then our investment will also get in danger.
Frequently Asked Questions about Equity Trading
Equity trading is associated with buying and selling of shares via stock exchanges.
Most of the beginners in the stock market go for equity trading as it is considered safe and easy to understand.
The best way to make money through equity trading is by making use of intraday trading which is extremely beneficial when you have the knowledge about the market fluctuations.
The role of equity traders is to manage the purchase and sale of stocks, making decisions that are based on market conditions and stock performance.
Equity traders may work for investment firms, mutual fund companies, or hedge funds. They may also be employed by brokerage firms and other financial institutions.
Trading in equities is not hard. It can be frustrating in the beginning but with consistency, you will start to see some progress. You just have to be persistent and patient.
If you are new in equity trading then I recommend that before starting trading in the equity market, open a demat account and start doing virtual trading for 6 - 12 months because it's a learning process, so it will take some time to learn all concepts.