What is Trading: Meaning, Types and More

Trading Link is an economic concept which essentially involves the exchange of goods and services between two entities or individuals. Any kind of trade is primarily carried out for growth, profitability and convenience.

• Trading is an economic concept which involves the exchange of goods and services between two entities.
• Stock trading in India began in the 19th century after the Bombay Stock Exchange was established in the year 1875.
• There are five types of trading in financial markets including day trading, scalping, swing trading, position trading, and momentum trading.

The place or platform where any trade is carried out is called a marketplace where all types of commercial exchanges transpire. Markets are also comprised of two categories: organised and unorganised.In an organised market, every business is required to follow a set of rules and regulations, which is usually monitored by a regulatory body. In an unorganised market, there are no strict rules or regulations.A trader is someone who regularly deals in the buying and selling of a financial asset. When it comes to trading in different financial asset classes like stocks, currencies etc., investors or traders become the entities and the stock exchanges become the marketplace for shares.

Financial markets facilitate trading of the following assets:

• Stocks : Trading in stocks means buying and selling ownership stakes of one or multiple companies.

• Indices : Indices represent a group of assets which allow you to gauge the overall performance of those assets.

• Mutual Funds : Trading in mutual funds lets you diversify your portfolio as they are a collection of different assets.

• Currencies : You can trade in currencies in the foreign exchange market to make profits.

• Commodities : You can trade in commodities such as gold, silver, crude, agricultural products and so on.

• Bonds : Bonds are debt securities that provide you with a fixed income in the form of interest payments.

There are essentially five types of trading in financial markets, which are explained below :

Day Trading

Day trading involves buying and selling of financial assets like stocks, bonds, mutual funds, commodities, or currencies during a regular trading session. A trading session in the Indian stock market takes place from Monday to Friday between 9.15 a.m. and 3.30 p.m. (except for market holidays).In day trading, the trader can hold securities till the stock market closes. The trader should have an appropriate understanding of financial markets including market volatility and fluctuations. Example: An investor buys 100 stocks of company X at a given price. He or she can then decide to sell some or all of these stocks if the price of the shares rises, in order to make profits. Or can decide to retain the shares in their portfolio for long-term investment.

Scalping

Scalping, also called micro-trading, entails making small amounts of profits repeatedly. It must be noted that not every transaction yields profits and sometimes, the trader may also incur losses.Therefore, the holding period of securities in scalping is shorter compared to day trading. The trader holds stocks spanning a maximum of a few minutes and must havemarket experience, awareness of market fluctuations, and the ability to make prompt transactions. Example : An investor buys 10 stocks of company X at ₹100 each at 10.00 a.m. The price of the share then rises to ₹120 each at 10.10 a.m., so the investor decides to sell those shares to make a total profit of ₹200. This is known as scalping.

Swing Trading

Swing trading helps traders to capitalise on short-term stock trends and patterns. It is done to earn profits from the stock within a few days of purchasing it, typically with the use of technical analysis (use of charts and patterns) of the stocks. Example : You want to buy a stock of company X so you perform technical analysis and realise that the company has been in a strong uptrend. You set a buy order at ₹500, which means your order will get executed if the stock’s price touches or falls below ₹500.To manage risk, you set a stop-loss order at ₹490 which means that if the stock’s price drops to ₹490, your position will be automatically sold to limit further losses.As a swing trader, you hold the stock for several days. During this time, if the stock’s price rises to let’s say ₹600, you can place a sell order at ₹600 to take profits. If the stock’s price falls and hits the stop-loss level of ₹490, your position will automatically be sold to limit your losses.

Momentum Trading

In momentum trading, a trader takes advantage of a stock’s momentum, which is a substantial value movement of stock, either upwards or downwards. Traders try to capitalise on such momentum by identifying the stocks that are either breaking out or will break out.

Position Trading

Position trading involves holding securities for a longer time to capitalise on the long-term potential of stocks rather than short-term profits. A trader can practice position trading if he or she is not a market professional or does not have enough time on a daily basis to keep track of market movements. Example : For instance, copper prices in India rise significantly within a span of one year, let's consider 2024. A positional trader who would have taken a position in copper commodities in, say 2022, would now want to sell those positions in order to make profits. Since the prices kept rising for a year, the trader would have made significant profits over a period of one year.

History of Trading in India

Trade is an economic concept that involves buying and selling of services and goods in return for compensation. It primarily began in primordial times to exchange goods.

Ancient Trading System

Trade in India started centuries ago, essentially during the onset of the Indus Valley civilisation, via barter systems. A barter system is when services and goods are traded in exchange for other services and goods.Subsequently, modes of trading evolved and became more structured during the Gupta and Mauryan periods.

Introduction of Money

However, the barter system was not effective in identifying the value of the respective product. Thereafter, the concept of money was introduced, which acted as a standard against which the values of goods and services were measured.

Arrival of Stock Trading

Stock trading in India began in the 19th century after the Bombay Stock Exchange was established. The exchange aided in boosting the country's financial and economic landscape and remains an important pillar of India's economic growth even today. Also Read: What is Equity Trading in the Share Market?

Trading offers you the following benefits:

• Trading ensures growth of capital, profitability, and convenience across marketplaces.
• Trading in financial markets takes place via stock exchanges which enables you to make profits and grants you an opportunity to further grow your wealth.
• Trading grants flexibility and you can practice trade as per your needs, budget, and expectations.
• Trading grants you the opportunity to capitalise on the growing economy and gives you direct exposure to the country’s economic expansion.

A trader can practice different types of trading depending on their expectations, knowledge and time. However, it is also important to be careful and make any financial decision wisely.