All About Trading And Trade Price in Stock Market

Due to their high returns, many investors are often attracted to investing in the stock markets . However, there are many technicalities that an investor must know to make wise and financially sound decisions before investing in the stock market. These will help them understand the volatility of the stock market and the risks involved so that they don’t get overwhelmed with all the financial jargon.This blog covers details of the trade price in the stock market and will shed light on how the price can be used to make financial strategies.

Investors are inclined to trade and invest in stocks, derivatives, commodities and bonds. The stock market provides them with a platform to facilitate buying and selling . To understand the trading price in the stock market, one needs to know how the stock market works.

The key participants of the stock market

Indian stock market has four key participants. They are:

• BSE (Bombay Stock Exchange)
• NSE (National Stock Exchange)

1. SEBI (Securities and Exchange Board of India) SEBI is a body that regulates all the activities involved in a stock market. They lay down the framework of rules and guidelines that have to be followed by stock exchanges, listed companies, broker firms, and all the participants. This regulatory body issues the guidelines. It also ensures the smooth and fair functioning of the stock exchange in India by maintaining transparency and efficiency.
2. Stock exchange The stock market provides trading and investment facilities to the participants. There are two primary stock exchanges in India. These are:
3. Traders and investors They are one of the prominent participants in the stock market. They buy and sell equities, trade-in derivatives and commodities, bonds etc.
4. Stock broker and brokerage firms They are intermediaries. Through them, the execution of the purchase and sell orders takes place. In return, they charge a fee or brokerage.

Also Read: What is the Importance of Brokers in the Stock Market?

The types of stock markets in India

Here is a quick read for investors to understand what a stock market is before we discuss the type of stock markets in India. The stock markets in India are categorised into two types. These are:

1. Primary market This market allows companies to list their shares to raise capital. This is done through IPO (Initial Public Offering). The subscription to an IPO can be done for a limited period. Once the subscription is done, the company becomes public and is ready to be listed on the stock exchange.To issue an IPO, the company needs to provide all the relevant information related to the company, like the company's financials, plans and projects etc., to the stock market.
2. Secondary market The secondary market is the place where the equities are traded or invested. There are two types of secondary markets, and these are over-the-counter markets and stock exchanges.

Any company's shares listed on stock exchanges can be traded in the secondary market. There are two ways of trading:

• Trading through a stock broker or a brokerage firm.
• Trading online as an individual trader.

1. Through stock broker The stock brokers help their clients open a demat account. After this, the trader has to inform the stock broker to buy or sell any stock. Usually, the stock broker/ brokerage firm gives tips to the trader. Based on these tips, the trader approves or rejects the trading activity. If approved, the stock broker places the trade order on behalf of their clients. This stock market trading method is helpful for new traders or beginners.
2. Online trading The trader must open a demat account and trading account with a stock broking firm or a stock broker, allowing online trading and investments. These days almost all stock broking firms have this facility. Once the account is opened, the trader can execute any number of trades independently. The value of trades depends upon the funds available in the demat and trading account. This method is helpful for those who have knowledge of the stock market and are comfortable trading on their own.

It is imperative to choose the right broker for trading and investing. A reliable and experienced broker can help an individual make profit. There are two types of stock brokers, these being:

1. Discount brokers These brokers merely provide an individual with a trading or investing platform. They are online brokers who do not give any personalized service to their clients. The trading and research have to be done by the traders themselves. However, charts and tools are provided by the broker.
2. Full-service brokers These are the traditional brokers who provide full service to their clients. They provide personalized assistance and help their clients meet their goals. These services include buying and selling shares, financial planning, market research and technical analysis, help building the portfolio, financial planning, retirement and tax planning, stock tips etc.

Trading and investing in the stock market is only possible if the trader or investor has a demat account. Anyone wanting to invest or trade in the stock market must open a demat account. Opening a demat account is a simple process and can be quickly done online. To do this, follow these steps: Step 1: First of all, find a reliable and experienced stock broker or brokerage firm and open a demat account with them. Step 2: Fill out and submit the online account opening form. This will be available on the stock broker/brokerage firm’s site or app. Basic details like name, address, contact number, Email ID etc., must be filled in this form. Step 3: Add the bank details needed for transferring funds and dividends, etc. These details are bank account number, type of account, IFSC of the bank etc. Step 4: Upload documents that support the photo ID proof and address proof. Step 5: The KYC (Know Your Customer) has to be done next. For this, the PAN number and Aadhaar number must be submitted. Step 6: The digital signature must be uploaded after linking Aadhaar and PAN card. Lastly, submit it. Step 7: The stock broker/brokerage firm will verify all the details and open the demat account. The credentials, like login details and demat account number, will be shared once all the details are verified. After which, the individual can operate the account by transferring some funds to this account.For offline mode, an individual has to visit the office of the stock broker/ brokerage firm, fill out the demat opening form, and submit the required documents along with a cancelled cheque leaf of the bank where the account is held. Once the demat account is opened, the account credentials are given to the individual.

The cash and derivatives markets are the two places to trade or invest in the stock market. The cash market, popularly known as the spot market, deals with the cash segment. In this, the buying and selling of equity is done on the spot (cash). In the derivatives market, the equities and indexes trade futures and options. It is also commonly referred to as financial derivatives. These markets have statistical measurements that represent the performance of market based on the performance of the best stocks on the market. They are called ‘ stock market indexes’ .The cash and derivatives markets are entirely different from each other. Some of the prominent differences between the cash market and the derivative markets are:

• In the cash market, the investors buy the shares of a company. They pay the price, take the delivery of the shares, and become the company's shareholders. They can hold on to the shares until they want to and sell them whenever they profit. Whereas in the derivative market, the investors trade in futures. They can never become the shareholder of a company.
• In the cash market, investors can buy as many shares as they want to. Even buying 1 share is allowed. Whereas in the derivative market, the minimum purchase is one lot. This lot has several units (shares of a company or index). The size of the lot is predetermined.
• The payment has to be paid in full to take the delivery of the shares in the cash market. On the other hand, only the margin amount has to be paid to initiate the future contract.
• The delivery in the cash market takes place in 2 days. In the derivatives market, there is no delivery. The futures contract automatically expires on the date of expiry.
• Investors investing in the cash market are eligible for dividends. This is not the case in the derivative market.
• The shares are bought in the cash market mainly for investing purposes. Some buy it for trading purposes also. In the derivatives market, the main objective of trading is hedging, arbitrage and speculation.

The main difference between trading and investing is the duration of the stocks held. An investor buys the shares of a company with a long-term perspective. A trader buys and sells the shares of a company for a short period. They take advantage of the price movements and buy at a lower price and sell at a higher price. There are many differences between the two. However, the significant differences are in the risk and time involved and how the investment is approached.

• Risk and time involved While investing, the investors hold their investments for an extended period. They are not affected by the fluctuations in the market. Even if there is a significant change in the stock price of the company invested, they are not affected. They aim to make considerable profits in due course of time. The risk factor is somewhat eliminated since it is held for the long term. They are less dynamic and stick to a safe form of investment. Usually, investors who want to meet a particular goal and have a horizon to park their money prefer investing rather than trading.Profits can be made in trading if the trader times the market well. Based on trends and technical charts, trading calls are made. Here the trader buys at a lesser price and sells it at a higher. The trades can be held for a single day, a few days or a month. It is basically a short-term investment. The reversal can also be done only in day trading, which means selling first and buying later.Here's an interesting read on risk management in stock market that every investor should know about.
• Investment strategy While investing in stocks, the fundamental analysis of the company is given importance. The fundamental analysis includes the financial analysis of the overall performance of the company and its previous records.On the other hand, while trading, the technical analysis and charts of the company are studied. The technical charts include the day-to-day trend of the company’s performance along with its financial charts on a daily basis. The company's price, volume, and moving averages help traders identify and study the trend. This helps them in predicting the movement of the price.

Trading in the stock market can be done in several ways. Some of the significant ways of trading are as follows:

• Day trading Many traders want to make quick money. They are not much concerned about the businesses of the listed companies on the stock exchange. They merely go with the flow and trade on news-driven stocks or tips given by experts for day trading. The day traders choose a stock and trade on them.When a stock is bought and sold on the same day, it is known as day trading. The day traders buy the stocks of a company. By the end of the day, they sell it after making a profit. It is not necessary that day traders will make profits on every trade. There will be days when they have to face losses.Reverse trading is also a form of day trading. In this, the trader sells a company's stocks and repurchases them when its share price falls, thereby making a profit. These transactions have to be done in a single day.
• trading SwingSwing trading is when the shares of a company are bought and sold only when it gives good returns. This is when a trader buys the stocks of a company and holds them for the short to medium term before selling them. This period may be from a few days to a few weeks. It may take some time to execute the trade entirely.
• Position trading This type of trading involves holding the shares of a company for a longer extended period. The traders take a position in their trade and sell it only after making a significant profit.
• Scalping Scalping is done at a fast pace. The trader has to be actively involved in the trades. It is done in short intervals of time and frequently throughout the day. In this, the trades (buying or selling) of the equities are held for less than a minute to few minutes. In scalping, the trading is done by observing small movements in the trade price of a stock .

Also Read: Intraday Trading For Beginners: Mastering The Basics

Investors feel that considerable funds are required to invest in stock markets. Due to this reason, many stay away from investing here. A large amount of capital is optional to invest in the stock market. There is no minimum requirement, but investing much money will give good returns.The amount required depends upon the number of shares the investor wants to purchase and the share price of the company. Eventually, it is the amount an investor is willing to invest. There are penny stocks available for less than Rs 5, and there are also large-cap stocks priced above Rs 10,000.Many market experts have worked out three strategies for new investors and traders to understand the minimum amount required in the stock market. These are:

1. 100 minus the investor's current age strategy This strategy is based on the fact that the older a person grows, the less the risk appetite. Young investors can take more risks, so they may consider having more equity exposure in their portfolios. For example, if an investor is aged 30 and has savings of Rs 50,000, the invested amount in the stock market can be 70% (100-30) of the net worth. This comes to Rs. 35,000 (70% of 50,000).Some contradict this, saying that the responsibilities and debts or loans are complete as a person ages. Older people are in a financial state to take more risks. Ultimately, it depends upon the risk appetite of an individual.
2. The X/3 strategy This strategy is given to beginners and helps in minimizing risk. In this strategy, the investors divide the amount invested into 3 parts. They only invest the first part of the available funds in buying company shares. Once the stock price rises and starts giving profits, then the second part can be invested in the same company. The third part of the investment can be repeated again, once the investor gets more returns. For example, an investor wants to invest Rs 30,000 in the stock market. Here, the amount will be divided into 3 parts, which means 30,000 /3=10,000. Here the investor will only invest Rs. 10,000 per round for 3 rounds.
3. The 75% profit strategy This strategy specifies that if 75% of the invested stocks are performing well, the investor may carry on with more investments. For example, if the investor has invested in 7 stocks, out of which 5 are doing well. This means the investor can think of increasing the investments. One needs to understand that it is difficult to get 100% accuracy as the market tends to be volatile. That is why 75% profit is the benchmark.

Many factors determine the trading price of the stock. Some of them are:

Demand and supply

If a company’s business is doing well, the demand for the stock of the company increases. This in turn will result in an upward movement in the stock price of the company. The supply of the stocks of a company increases when it is not doing well, and traders start selling the company's shares. This results in a fall in share prices.

Industry-sector specific

If the stocks of a particular industry, for instance, auto, IT, FMCG etc., are doing well. Then there are more chances of the stocks of a company related to that sector also going up and vice-versa.

Company specific

If the company performs well and has strong financials along with a good business model and efficient management. Then the stocks of this company perform well in the stock market and will rise. If the company's business is not doing well, it will fall.

IPO (Initial Public Offering) is when a private company issues and offers its shares to the public. This happens when the list is in the stock market for the first time. IPOs are issued if the company wants to raise funds for reasons like expansion. It can also be if the company has many debts and losses and wants to recover from them.The trade price of the IPO (Initial Public Offering) is derived from a few factors. The significant factors that affect the trade price of the IPO have to be considered. These are:

• The number of stocks issued by the company in an IPO.
• The business model of the company.
• The future and growth plans of the company.
• The past financial performances of the company.
• The market trend, especially when the company is listed on the stock exchange.
• The company’s market price when it is listed.

Also Read: Understanding The IPO Process in India

The trade price of the stock can be found on the stock exchanges (NSE and BSE). It can also be viewed on the website or app of the stock broker or the brokerage firm. These days media like business-related television channels and news agencies have their apps. They keep updating the live prices of the stocks. Apart from this, the prices can easily be viewed online.

Investments are suitable as they secure an individual's future. There are a few things that should be kept in mind before investing or trading in stock markets. Trading is quite risky, and it is advised to trade only after adequate knowledge. If an individual wants to get more returns, then they must be willing to take risks. Before investing, an individual needs to keep an allotted amount aside for trading. After this, the focus must be to achieve the financial goal from this amount. The more the individual stays invested in the stock market, the better the returns and the less risk.