What is Trading?
Trading is the process of buying and selling financial assets like stocks, bonds, or commodities with the aim of making a profit. In the stock market, traders try to take advantage of price fluctuations by buying when the price is low and selling when it goes up. Unlike investing, which focuses on long-term growth, trading typically focuses on short-term gains.
Types of Trading
- Intraday Trading: In this type of trading, you buy and sell stocks within the same day. The goal is to profit from small price movements, and positions are closed before the market closes.
- Swing Trading: Swing traders hold stocks for a few days or weeks, aiming to profit from medium-term price swings.
- Positional Trading: This involves holding stocks for a longer period, from weeks to months, based on long-term trends.
Difference Between Trading and Investing
The key difference between trading and investing is the time horizon and approach. Investors aim to build wealth gradually over time by holding assets for years or even decades. Traders, on the other hand, focus on short-term profits and frequently buy and sell assets. Traders actively monitor the market, while investors focus on the long-term potential of companies.
Trading Accounts: Demat & Trading Accounts Setup
To start trading in the stock market, you need two essential accounts:
- Demat Account: A demat (dematerialized) account is where your shares are stored electronically. When you buy shares, they are held in your demat account.
- Trading Account: This account is used to place buy and sell orders in the stock market. It acts as a bridge between your demat account and your bank account.
To set up these accounts, you can approach a broker or use online platforms. You’ll need to complete KYC (Know Your Customer) requirements, which include submitting ID proof, address proof, and a bank account for linking.
How to Place Orders
- Market Order: Bought or sold immediately at the current price.
- Limit Order: Bought or sold at a specific price you set.
- Stop-Loss Order: Automatically sells a stock if it reaches a certain price.
