What are the types of stock market transactions?
But when you divide the forms of trading according to investment strategies, there is technical trading and fundamental trading. And when we categorize the forms of trading based on time frame, there is intraday trading, swing trading, and positional trading. Thus, these different forms of trading tend to overlap due to the common characteristics they share.
For example, technical trading is similar to intraday trading, and fundamental trading shares some characteristics with positional trading.
Here we provide an overview of the main trading categories on the exchange:
Intraday trading is also known as day trading. If an investor buys and sells stocks on the same day, then this is called intraday trading. This directly means that if an investor buys a set of stocks one day, they must sell those stocks before the end of the same day, before the market closes for the day. This form of trading allows investors to use margins, where they get credit from a broker.
Intraday trading is low risk because it is short-term, but it can become risky when the trader uses too much money on margin. Also, this trade requires relatively less capital investment as it allows traders to make payments in the form of small margins.
On the other hand, this does not facilitate long-term capital investments, so investors cannot expect high returns. It also requires the full concentration of the trader throughout the day.
Delivery trading is the form of long-term investment and it is also considered one of the safest ways to invest in the stock market. This form of trading is the most common in the stock market. The investor makes delivery trades with the aim of holding his purchased shares for a longer period.
Unlike intraday trading, delivery trading does not allow the use of margins, and the investor himself must be in possession of the necessary funds. This type of trading requires the investor to pay a full amount for their trades. Delivery trading does not place any time constraints on stock trading, it would simply require the delivery of stocks to a respective demat account.
In delivery trading, there is a possibility of earning high dividends, voting rights, etc., for the investor from the company in which he has invested. There are no cases of short selling in this type of trading. Delivery trading certainly brings big profits to the investor as the growth of the business is reflected in the dividends the investor receives over a period of time.
In delivery trading, it is relevant that the investor makes full payment as no margin is allowed. This can lead to loss of investment opportunities due to lack of access to money.
Swing trading capitalizes on changes or fluctuations in the prices of stocks or any other financial product in the market for a few days. Traders participating in swing trading aim to hold stocks for longer than a day and benefit from the added momentum in the stock price.
The main factor that differentiates swing trading from others is time frame. In swing trading, stocks are held by the trader for a short time — a few weeks at most.
In this type of trading, it is very important for traders to be able to understand the price trends in the market. They need to make sense of the trend to be able to generate high profits.
Positional trading is the form of trading that relies on a buy and hold strategy. This forces traders to hold stocks for a long time. Traders who want to react to the slightest movements in the market opt for day trading whereas positional trading only brings profits when traders expect a significant rise in price.
Apart from offering high returns, this form of trading also does not require extensive monitoring of one’s trading profile and day-to-day market conditions.
However, positional trading is one that requires extensive research and study before buying shares of a company, because trading itself involves long-term ownership of those shares.
Traders involved in fundamental trading are well known for their fundamental analysis as it relates to company data and subsequent growth estimates. Particular emphasis is placed on company-related events.
This type of trading is also called limit investing because fundamental traders believe in a buy and hold strategy, leading to long-term trading, i.e. investing.
Moreover, they are well aware of the business growth, management potential, financial stability and hence these traders are waiting for further momentum for high returns.
Technical trading is done through effective technical analysis of the market. This type of analysis helps traders understand stock price movements and make trading decisions accordingly.
A technical trader can be successful with their ability to research and knowledge of stocks. This form of trading would require the trader to be able to clearly read charts and graphs containing information. Moreover, the risk associated with this type of trading is relatively high and following patterns is crucial.
Thus, we can say that a stock trader can engage in any of the forms of trading mentioned above, which depends on his buying and selling decisions and, most importantly, on the reasons behind these decisions.
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