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Stock Market Trading

Stock Market Trading

Stock market trading isn't just for stockbrokers, corporate managers, chartered accountants, and bankers anymore.

Investors from all sections of society are slowly but surely making their way into stock trading.

So what do you need to know about it? In this guide, we will get you through some of the most frequently asked questions about India's stock market trading.

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What is Stock Trading With Example

Stock trading is the act of buying and selling shares of a company. Shares, also known as equities, represent fractional ownership in a company.

When you purchase shares in a company, you own a piece of that business.

Stock market trading isn't just for stockbrokers, corporate managers, chartered accountants, and bankers anymore.

A share market is a place where shares of different companies are traded.

We've seen the share market in movies, and we often hear news about it on television, but what do we know about the share market? Or how does it work?

Nowadays, buying and selling stocks is getting very convenient because of the internet.

Online stock trading allows you to invest in a wide variety of stocks, at any time and from anywhere in the world.

Example of Stock Market Trading

For example, if an investor buys shares of a company's stock at 500 rupees a share and the price of the stock subsequently rises to 600 rupees a share, the investor can then realize a profit on their investment by selling their shares.

Conversely, if an investor buys at 500 rupees per share and sells at 400 rupees per share, they can expect to realize a loss.

Types of Trading in the Indian Stock Market

There are 6 types of Trading in India that are:

  1. Intraday Trading
  2. Delivery Trading
  3. Short Sell Trading
  4. Buy today Sell Tomorrow
  5. Sell today Buy Tomorrow
  6. margin Trading

Intraday Trading in Indian Stock Market

Intraday Trading is also known as day trading. It is the buying and selling of shares, stocks, Forex/currency, futures, and options on the same day.

Intraday trading strategies look to profit from intraday price movements of securities. The 'intra' in intraday trading means within a day.

Every transaction between 9:30 am, and 3:30 pm is called intraday trading. If you buy Reliance shares on Monday morning, you need to sell them before 3:30 pm. Otherwise, you will be holding your share overnight.

Let us understand intraday trading with an example: Suppose you are interested in buying Reliance Industries Limited (RIL).

Suppose, current price of RIL is Rs. 1,000 per share, and you think that its price will go up shortly, so you decided to buy it today. Let's say after some time, RIL shares reach Rs. 1,050, and you decide to sell your shares at this price.

If you buy one share today and sell it tomorrow, then it will be considered a delivery-based trade, but if you buy and sell it on the same day, it will be intraday trade.

Delivery Trading in Indian Stock Market

Delivery trading is also known as position trading. In this type of trading, the trader keeps a long-term horizon.

Meaning the trader buys and holds the stocks for a longer period. It can be for weeks or even months.

The biggest challenge in delivery trading is identifying stocks with large price movements. Here, the trader seeks to buy stocks based on extensive stock market research.

Moreover, he looks at technical trends and projections that suggest a large price movement.

In this trading style, the trader buys a stock when he sees an emerging trend. Likewise, he sells a stock when the trend is at its peak.

Delivery trading requires knowledge and skill to predict future market movements. Besides, it would help to monitor your portfolio closely to avoid losses.

Short Sell Trading in Indian Stock Market

Short selling is another popular trading strategy. Here, the trader sells the shares even without holding them.

In other words, he sells first and then later buys the shares before the end of the trading session.

The logic behind this trading style is that the trader anticipates the market to be bearish. He expects the price to fall.

So, he enters a short position (sells shares) and later recovers (buys shares) when the price falls.

The position has to be squared off before the market closes. In other words, it means selling shares at a high price and buying it back at a low price.

Suppose the current price of Infosys is Rs. 2,000. A trader expects the price to fall short, selling 500 shares at Rs. 2,000 and decides to buy them back when the price falls to Rs. 1,900.

The total worth of his trade is Rs. 20 lakh (500 shares X Rs. 2000). The next day, the price of Infosys falls to Rs. 1,900, and he buys back 500 shares at that price, making a profit of Rs. 50,000 (Rs. 100 X 500).

Buy Today Sell Tomorrow in Indian Stock Market

In BTST orders, instead of getting shares from the buyer in T+2 days, you get money from him.

And instead of getting money from the seller in T+2 days, he gets shares which means he holds them for only 1 day before they are transferred to you.

The period between the day on which the BTST order is placed and the settlement date is called the "holding period."

Buy Today, Sell Tomorrow is a unique facility that lets you sell shares before they are credited into your Demat account.

Sell Today, Buy works Tomorrow in the same way you can buy shares before they reach you.

For example, You bought 100 shares of Infosys on Monday at Rs 1500 per share and want to sell those on Tuesday without actually having the share in your Demat account on Tuesday.

Then you will have to use the BTST option for Infosys shares on Monday instead of normal.

Sell Today Buy Tomorrow in Indian Stock Market

STBT allows customers to sell their shares in the cash segment (shares in their Demat account) and buy them again the next day.

But if you want to sell shares in the Indian stock market, you can't just sell them today and buy new ones tomorrow. You need to keep them in your Demat account for at least a day first.

If you don't, your broker might get panelized by the exchange for not delivering the shares to the initial buyer.

As it stands, no brokers in India offer STBT in the cash market as it's not permitted.

The two main benefits are:

  1. It gives you that extra buying power so you can choose when to purchase shares. You don't have to wait until your cash account is filled.
  2. You can practice your trading skills without all the stress of having to pay money for something that might not work out.

Margin Trading in Indian Stock Market

Margin trading is a form of financial speculation. An investor borrows money from the broker to buy a security, sells it on the market at a higher price than they paid for it, and then returns it to the broker.

This creates what is known as credit risk or margin call risk; if the security drops in value before they return it to the broker, they owe money to the broker.

Margin trading has become popular because of its low-risk nature compared with other financial techniques such as short selling and derivatives.

Here's an example:

Margin Deposit: Rs 2000

You buy stock XYZ at Rs 100.

Total value of purchase = Rs 20,000 (100 * 200)

You will pay the full amount (Rs 20,000) to the broker on the same day. The broker will retain a margin deposit of 2% (i.e., Rs 400) and lend you 98% of the amount (Rs 19,600). This is called Intraday Margin or Day Margin, or Pay-In Margin.

Frequently Asked Questions

Yes. Rs 1,000 is good enough to start stock trading in India for beginners. This fund is sufficient to buy any stock in India whose share price is trading below Rs 1,000 at the time of entry of trade.

With the help of Demat account and online trading account facility you can easily invest in equity shares of companies listed on NSE, BSE, MCX & NCDEX exchanges.

Three easy steps to start online stock trading in India:.

  1. Open demat account with Swastika Investmart
  2. Login to your demat and trading account and add money.
  3. View stock details and start trading.

Yes, it is possible to make money in stock trading.

To be a successful trader, you must first understand the financial markets. If you do not know what the market is all about, you should not even bother getting into it.

Secondly, you must have a trading system that works for you. One that fits your personality and has been proven to work over time.

Thirdly, you must have the discipline to follow your system and ignore all of the distractions around you from outside influences like social media and news outlets.

Fourthly, you must understand risk management and position sizing so that one bad trade does not wipe out months or years of good trades.