Trading is the process by which buying and selling is done to earn profit. In share market trading, profit is earned by buying shares at a cheap price and selling them at a higher price.
Nowadays we see that people are earning lakhs of rupees by online trading in share market . In such a situation, the question raises in our mind that what is Trading and how to earn money from it?
If you also want to earn a lot of money by trading then you have come to the right place because today in this article I am going to give you complete information about trading like – What is trading in share market and how do new people learn trading , How to do trading, how many types of trading are there and also tells that about best stock trading apps in INDIA in 2023 with zero-brokerage charges etc.
Apart from this, I will also tell you some important things related to trading. I promise that if you read this article completely till the end, then there will be no doubt in your mind regarding what is Trading .
What is Trading?
Trading is the process of buying and selling goods and services to earn profits. People doing trading are called Traders. The purpose of trading is to buy things at a lower price and earn profit by selling them at a higher price.
Trading in share market means buying and selling shares. There are two types of trading in stock market: short term trading and long term trading . Most of the traders do intraday and option trading to earn quick profits from the stock market.
Let’s learn with example for better understand:
Nowadays trading happens in every business whether it is online or offline. In trading, both buyer and seller want to earn profit.
If we look at the example of trading in the share market, our aim is to earn profit by buying shares at a lower price and selling them at a higher price.
Remember – online trading is not only in share market but also in commodity market and Forex market. In the commodity market, commodities like Gold, Silver, Crude oil etc. are traded whereas in the Forex market, currencies like; Rupees, dollars, pounds etc. are traded.
Now that we have talked about online trading… now let us talk about offline trading also –
Example of Trading :
To understand trading, see the example of vegetable market. The buyer buys vegetables from the vegetable market at a lower price and sells them at a higher price and thus earns profit.
Similarly, in the clothing business also, the shopkeeper buys the goods collected in wholesale at cheap prices and then sells them to the customers at higher prices, this is called trading .
NOTE: Friends, in this post I will mostly talk about Stock Trading because I know that you people are more interested in learning online trading than offline trading. And on this blog also I talk only about the stock market, that is why in future I will talk only about stock market trading and not about offline trading. That’s why I made this thing clear to you all in advance.
Till now you have known ‘ What is Trading ‘, now let us know further –
How many types of trading are there?
There are two types of trading –
- short term trading and
- long term trading.
Short term trading– includes intraday, swing and option trading while long term trading includes delivery and positional trading. Apart from this, scalping trading, algo trading, margin trading, and muhurta trading are also types of share market trading.
Among all these 3 trading are most popular –
- Intraday Trading
- Swing Trading
- Option Trading
We are going to talk about these in detail below. But before that let me tell you briefly about the remaining trading.
Long Term Trading – This includes delivery and positional trading. In delivery trading you buy shares on delivery and in positional trading you hold your position in a particular stock for short term or long term.
Some of you might be thinking that delivery trading means investing, then why am I calling it trading… Yes, you are right, it is investing but in the long term you will sell the lion someday or the other. And buying and selling of shares is called trading, hence you can also call investing as long term trading.
Scalping Trading – The Hindi meaning of ‘scalping’ is black marketing. Such trading in which trading is done outside the rules of the stock market is called ‘scalp trading’.
This means that just as in the stock market one buys a share and then expects it to increase, but nothing like this happens in scalping trading because in this people book profits immediately.
It comes under short-term in which profit is earned by selling shares in just a few minutes. Let us tell you that this is a little different from intraday trading.
Algo Trading – In Algo trading, people are not needed but automatic trading is done through some algorithms and software in computers.
Margin Trading – Whenever you trade with margin in any particular stock through your broker, it is also called margin trading or leverage trading.
Margin means money which is not paid by you but is given by your broker to you for trading.
Margin trading facility is provided in almost every broking apps nowadays. In these you get margin ranging from 20% to 80%.
But remember that the risk in margin trading is also high because if you suffer a loss then the broker can also impose heavy charges on you. Therefore, do margin trading only when you are completely confident in your trade.
Muhurat Trading : As the name suggests, trading done at an auspicious time is called Muhurat Trading. This is mostly done on the occasion of Diwali in which this trading is done during a certain auspicious time.
Let us now tell you about those types of trading which are most popular –
1. Intraday Trading
Trading of buying and selling shares in the same day is called ‘ intraday trading ‘. In this you have to buy and sell shares on the same day.
If you have bought shares intraday and you do not sell the shares you bought on that day before the stock market closes i.e. before 3:30 pm, then your broker automatically ‘squares off’ your position, meaning buy on that day. He sells all your shares. Besides, you also have to pay some extra charges because you could not sell your shares before the market closed.
- Understanding chart patterns is very important for intraday trading. Every intraday trader tries to predict which candle will form next on the chart.
- In intraday trading, trading is mostly done on 1 minute, 5 minute and 15 minute charts.
- In intraday trading, it is not necessary to do research on companies, you just need to have some knowledge of technical analysis.
- In comparison to delivery, you get much better margin in intraday but the risk is also higher in it.
- An intraday trader trades using a lot of chart patterns, support resistance, targets, stop loss, moving averages and many types of trading setups to make profits.
- In intraday trading, you do not need to find fundamentally strong stocks, rather you can trade in any stock with poor fundamentals, as long as the volume should be good.
It is said that the possibility of loss in intraday trading is very high, which is also true, but if you trade wisely by setting stop-loss, understand trading psychology and trade by following intraday trading strategies, then you can reduce your losses. You can reduce the cost and increase the profit.
2. Swing Trading
Trading that involves buying and selling shares over a period of a few days to a few weeks is called ‘ swing trading ‘. Meaning, in swing trading, most of the people sell their purchased shares when they get 5% to 20% profit, it does not matter whether it takes 1 week or 1 month.
- Swing trading is considered safer than intraday trading because it is not necessary to sell the shares on the same day.
- To earn more profit from swing trading, you should invest money in Nifty Next 50 stocks because the volume in these companies is good and the fundamentals are also good.
- Instead of intraday, in swing trading you have to choose a fundamentally stable company because you want to earn your profit not in a few minutes or hours but in a few days and you also do not want to take much risk.
- Support and resistance are very important in swing trading and through these you earn profits.
- There are many stocks which continuously trade between their support and resistance. By creating a position in such stocks, you can earn good money from swing trading.
Some people earn good money through swing trading even when there is breakout and breakeven in stocks. Breakout in the chart of any share means that it has broken its previous support or resistance, meaning the share has gone too high or too low from its previous price.
After understanding intraday trading and swing trading, let us now talk about option trading –
3. Option Trading
The trading of buying and selling call and put options is called option trading. Buying a call option means you are bullish on the stock market and buying a put option means you are bearish.
Option trading is considered the most risky, in this you can make a profit of lakhs of rupees in a few minutes and also lose lakhs of rupees in a few minutes because the premium prices on the option trading chart go up and down very fast .
To do option trading, you need very little money, even you can start option trading with Rs 100.
In this you can earn money in two ways:
- by buying options and
- by selling options.
Let me tell you that in the stock market there are 80% option buyers while only 20% are option sellers. The reason for this is that in option buying you can start with Rs 100-200 whereas in option selling you need lakhs of rupees.
Also know that 75% of option sellers make money while only 25% of option buyers are able to make money. The reason for this is that option sellers have a lot of money while option buyers trade with only a little money and all the new people do option buying only, hence they suffer losses.
In option trading, the option seller makes money because he made less profit by paying more money, whereas the option buyer makes loss because he expected more profit by paying less money.
I want to tell you that while doing option trading, always keep a stop loss, otherwise you can lose lakhs of rupees in a few minutes.
In this you should trade according to your risk management only.
Friends, I want to tell you that never do option trading without learning because by doing this you may earn a little money in the short term but in the long term you will incur losses.
NOTE – I want to tell you one more thing that never do option trading by taking loan in your life because many people have already been ruined by doing so. That is why first learn it well, understand it, get hold of trading psychology, know all its basic rules and only then start investing a little money.
How does trading work?
Trading in the share market works on the basis of buyers and sellers buying and selling shares. The law of demand and supply works in stock market trading. The price of the stock which is in high demand starts increasing and the price of the stock which is in low demand starts decreasing.
To understand how trading works, you need to understand trading volume .
If today the buying volume in a stock is high and the selling volume is low then obviously the stock will go up and if the situation is opposite then the stock will go down.
Apart from this, keep an eye on the Bid and Ask price to understand how the share price moves up and down in trading. Bid price means at what price the buyer is ready to buy the shares and Ask price means at what price the seller is ready to sell the shares.
You should know that trading in any stock is not possible unless the bid and ask price match. This means that the stock cannot be traded until the buyer agrees to buy the stock at the seller’s price.
And this is the reason why some stocks do not trade for long because the number of buyers and sellers in them is very less. That is why if someone buys a large quantity of such stocks, the price of that stock suddenly starts increasing very rapidly and then that stock starts appearing in the news.
You must have seen many times in the news that if any FII i.e. foreign investor buys a share, then a lot of people start investing money in that share due to which within a few days the price of that share increases a lot and then after a few days Starts coming down continuously.
But a midst all this, swing traders earn good money because they get profit only when there is movement in a stock. For now, just understand that if buyers are strong in a stock then it will go up and if sellers are strong then that stock will go down.
What is involved in trading?
Trading includes all the things of technical analysis like – chart patterns, moving average, support resistance, indicators, volume, price action, put call ratio etc.
If we look at all these things one by one, then trading is a very big field which includes many things.
For example: If we look at chart patterns, there are different types of chart patterns which can take you weeks to months to learn.
Similarly, there are many types of indicators in which RSI indicator is my favorite. Apart from this, there are different types of moving averages.
If we look at the candlestick chart pattern, there are different types of candles in it and each candle has a different meaning.
In this way, there are many things in trading but to be successful in trading you have to have a strong hold on one thing.
Till now you have learned what trading is, its types, how it works and what is involved in trading, now let us know how trading is done in the share market –
How to trade?
To trade in the share market, first of all you have to open a demat account with a broker. After this you have to add money to your trading account. Then you can choose any stock and start trading in it.
If you want to do option trading in the stock market, then first you have to go to your demat account and activate the F&O i.e. future and option segment. Only after that you can trade in options.
Now it is up to you whether you want to do intraday trading, swing trading or option trading. You will have to prepare your trading strategy accordingly.
How to learn trading?
To learn trading, you have to learn technical analysis, understand candlestick chart patterns and price action. Apart from this, you can also learn trading by reading online trading courses and trading books.
1. Read trading books
There are many trading books available in the stock market. But before buying any book, decide what type of trading you want to do, option trading, intraday trading or anything else. After this, definitely check the online rating and reviews about that book on the internet. If didn’t know what is stock market and you want to start trading then these top 10 books will really benefitable for you.
2. Practice Paper Trading
If you do not want to take risk in the beginning then you can start with paper trading. Doing paper trading means that after watching the live market, you keep writing down the buying and selling levels, support resistance and amount of the share price on paper.
Then after some time check whether you have profit or loss. When you start getting profit on paper 7 times out of 10, then you can trade in the live market.
Some people say that your psychology does not work properly in paper trading which is true to some extent but by trading on paper you are just practicing in which you do not gain anything and I believe that if you trade on paper But if you are making losses again and again, then you will only make losses in the live market.
3. Learn by taking online trading courses
There are many online trading courses available on the internet but before taking any course, definitely check its rating and receipt. I say that instead of taking online courses, you should watch stock trading videos for free through YouTube channels because nowadays there is so much free content available on the internet that you can learn whatever you want.
To be successful in share market trading, follow the rules given below –
- Never trade in the stock market by taking a loan because by doing so you can get into big trouble.
- To get success in trading, first you have to learn it, those who learn to trade can never become successful traders.
- While trading, make sure to find out the brokerage and charges incurred in the broking app.
- Do not buy any share just by seeing its price increasing because it may be being inflated unnecessarily by the operator.
- Never invest all your money at once and certainly not in options trading.
- Always keep a stop loss while trading.
- Don’t be too greedy, keep your mindset clear beforehand that you will exit after making 10% or 20% profit.
- Chatting with Discipline Follow the rules you’ve set.
- Decide in advance at which level you want to take entry and at which level you want to exit.
What to keep in mind before trading?
You should keep these things in mind while trading in the share market –
1. Be cautious while trading based on news –
Many people trade on the basis of news, meaning when good news comes in a stock, they buy it. Then after some time, due to the same news, many people start investing in the same share, then its share price increases and then they earn profit by selling the share.
Many people earn a lot of money by trading based on news. You should know that false news spreads very fast in the stock market. Bad companies are promoted through social media in which small retail investors get trapped and the operators run away with all your money.
2. Do not trade in circuitous stocks
Circuits mostly happen in penny stocks only.
These are of two types –
- Upper circuit and
- Lower circuit.
Such shares are controlled by operators who suddenly increase the price of any share.
Then when small investors start investing in it, its share price seems to increase and when the share price reaches a high level, then the operators sell all their shares due to which a lower circuit starts forming in that stock, due to which no one can buy it. Even investors are not able to sell their shares and you get stuck in that share. It is also called, “pump and dump scheme”.
What is the difference between trading and investing?
- In trading you have to focus on technical analysis whereas in investing you have to focus on fundamental analysis.
- While trading it is important to look at price action and charts whereas in investing it is important to look at the business model of the company.
- In trading, the price history of the stock has to be checked, whereas in investing, the past performance of the company has to be checked.
- Money is earned from trading in short term whereas from investing in long term.
Pros and Cons of Trading
What are the benefits of trading?
- By trading you can earn more money in less time.
- You do not need any professional degree to learn trading.
- There are many online trading software in which you are given fake cash so you can practice trading in the live market.
- Your loss in trading is only as much as the capital you invest while the profit is unlimited.
- You do not need to go anywhere to trade. You can earn lakhs of rupees a day by trading from your mobile sitting at home.
What are the disadvantages of trading?
- If you do not set stop loss while trading, your capital worth lakhs of rupees can become zero in no time.
- If you trade with margin, your risk increases even more.
- Some people do not understand broking charges very well, due to which they have to pay charges equal to the profit they make.
- It is true about trading that people lose many times more money than they earn in it, the reason for which is trading without learning.
Friends, in this post I have tried to give you complete information in detail about what is trading in share market . I hope you have now understood what trading is, how many types there are, how trading works and how to do trading.