Types of Trading in Stock Market

Types Of Trading In Stock Market

The process of trading on the stock market is made up of many different strategies and styles. There are different ways to trade, such as:

  • Intraday Trading
  • BTST (Buy Today Sell Tomorrow)
  • STBT (Sell Today Buy Tomorrow)
  • Scalping
  • Momentum Trading
  • Position Trading
  • Swing Trading
  • Delivery Trading
  • Margin Trading

Different Types Of Trading In Stock Market

There are many ways to trade stocks on the stock market. Each type of trading has its own strengths, weaknesses, opportunities, and risks. Let’s explore each one in detail:

Intraday Trading

In intraday trading, you buy and sell securities within the same trading day. Traders take advantage of the small changes in the stock price that happen throughout the day.

Let’s understand this with an example, Mr. Sharma, an active trader, purchases 1000 shares of Infosys Ltd at 9:30 AM for INR 1,500 each. Around 1 PM, the price rises to INR 1,520, and Mr. Sharma decides to sell all his shares. This results in a net profit of INR 20,000 (INR 20 x 1000 shares) within a single day. This is an example of intraday trading.

BTST (Buy Today Sell Tomorrow)

BTST (Buy Today Sell Tomorrow) is a trading strategy where a trader buys stocks today and sells them tomorrow, regardless of whether the price has risen or fallen. This strategy is employed to take advantage of the overnight price gaps.

Ms. Gupta buys 500 shares of HDFC Bank Ltd on Monday at INR 1,500 per share. The next day, the price rises to INR 1,520 per share, and she sells all her shares, making a profit of INR 10,000 (INR 20 x 500 shares). This is an instance of BTST trading.

STBT (Sell Today Buy Tomorrow)

STBT (Sell Today Buy Tomorrow) allows traders to sell a stock today and buy it back the next day. This tactic is usually applied when a trader expects the stock’s price to decrease the next day.

Mr. Ravi short-sells 200 shares of Reliance Industries Ltd on Tuesday at INR 2,000 per share, anticipating a fall in the price. On Wednesday, the price drops to INR 1,980 per share. He buys back the 200 shares at this lower price, thereby earning a profit of INR 4,000 (INR 20 x 200 shares). This is an example of STBT trading.

Scalping

Scalping is a high-speed trading strategy that aims to profit from small price changes, usually held for a very short duration. 

Mr. Singh buys 100 shares of Tata Steel Ltd at INR 900 each. After a few minutes, the price increases to INR 901. He quickly sells his shares to secure a profit of INR 100 (INR 1 x 100 shares). This rapid, small-margin trading strategy is known as scalping.

Momentum Trading

Momentum Trading involves buying and selling securities based on recent trends in their price and volume movements. Traders hop onto trending stocks and exit when they perceive the trend to be losing momentum.

Ms. Kumar sees that the shares of Maruti Suzuki Ltd have been rising steadily for the last few days. Predicting the trend will continue, she buys 100 shares at INR 7,000 each. After a week, the price climbs to INR 7,200, and she sells her shares, profiting by INR 20,000 (INR 200 x 100 shares). This is momentum trading.

Position Trading

Position Trading is a long-term approach where traders hold positions for weeks to months, or even years, banking on a company’s overall performance and trends in the marketplace. 

Mr. Rao purchases 500 shares of TCS Ltd at INR 2,500 each, intending to hold them for several months. Six months later, the price per share has climbed to INR 3,000. He sells his shares for a profit of INR 250,000 (INR 500 x 500 shares). This is an example of position trading.

Swing Trading

Swing Trading attempts to capture gains in a stock within a span of a few days to several weeks. Traders utilize technical analysis to find stocks with short-term price momentum.

Ms. Nair buys 100 shares of ICICI Bank Ltd at INR 500 each. After ten days, the price rises to INR 520. She sells her shares, netting a profit of INR 2,000 (INR 20 x 100 shares). This short-term profit-oriented strategy is known as swing trading.

Delivery Trading 

Delivery Trading refers to a trading system where traders buy stocks and hold them in their accounts for more than one day.

Mr. Anand buys 100 shares of Bajaj Auto Ltd and holds them in his demat account for over a month before selling at a higher price. This long-hold strategy is an example of delivery trading.

Margin Trading

Margin Trading involves borrowing money from a broker to purchase stocks. This method amplifies the potential returns but also the risks if the trade goes south.

Ms. Iyer, using her INR 10,000, borrows another INR 10,000 from her broker to purchase shares of SBI Ltd worth INR 20,000. If the stock price rises and she sells for a profit, her earnings will be amplified due to the larger investment, minus the interest she owes the broker. But if the stock price falls, she could lose more than her original investment. This is an example of margin trading.

Quick Summary

  • The stock market offers a variety of trading types, each suiting different investment goals and risk tolerance levels.
  • Intraday Trading involves buying and selling stocks within the same trading day, ideal for active traders who can monitor the market closely.
  • Buy Today Sell Tomorrow (BTST) and Sell Today Buy Tomorrow (STBT) involve holding trades for a single night, ideal for traders who want to benefit from overnight price changes.
  • Scalping is a fast-paced trading strategy where traders profit from small price changes, requiring constant market monitoring.
  • Momentum Trading focuses on stocks with upward or downward trends, ideal for those who can predict market movements accurately.
  • Position Trading involves holding stocks for a longer duration (weeks to months) to benefit from a broad market trend.
  • Swing Trading involves holding stocks for a few days to a few weeks, targeting gains from short-term price patterns.
  • Delivery Trading is a traditional form of trading where stocks are bought and held for a significant period (months to years).
  • Margin Trading involves borrowing money from the broker to trade more than the available funds, ideal for risk-tolerant traders aiming for higher profits but it comes with increased risk.
  • With Alice Blue, you can start your journey in trading. You can invest in stocks, mutual funds, and initial public offerings (IPOs) for free. They also offer a service called “Margin Trade Funding,” which lets you buy stocks with 4x margin. This means you can buy stocks worth  Rs 10,000 for just  Rs 2,500. 

Frequently Asked Questions

Which type of trading is best for beginners?

  • Delivery Trading
  • Position Trading

Is trading better than investing?

Trading and investing are two different approaches to the stock market, each with its benefits and risks. While trading focuses on short-term profits, investing aims at long-term wealth accumulation. The choice between trading and investing depends on individual financial goals, risk tolerance, and market knowledge.

What is intraday trading vs day trading?

The difference between intraday vs day trading is that day traders always close out their positions by the end of the trading day, whereas intraday traders may occasionally hold positions overnight if they anticipate favorable market movement.

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