Introduction about Share Trading for absolute beginner.
Share trading, also known as stock trading, refers to buying and selling shares of companies on a stock exchange. Shares represent partial ownership in a company. When you buy a share, you’re essentially buying a small piece of that company.
Share Trading breakdown:
- Marketplaces: Shares are traded on stock exchanges like the National Stock Exchange of India (NSE) or the Bombay Stock Exchange (BSE).
- Mechanics: To trade shares, you need a demat account (stores your shares electronically) and a trading account with a broker. Here broker acts as an intermediary between you and the exchange.
- Goals: Share trading can be used for various goals, such as:
- Long-term investment: Buying shares and holding them for years to benefit from company growth and dividend payouts (company profits shared with shareholders).
- Short-term trading: Capitalizing on short-term price fluctuations to make quick profits.
Important points to remember about share trading:
- Risk: Share trading involves inherent risk. Share prices can fluctuate, and you could lose money.
- Research: It’s crucial to research companies before investing. Consider factors like financial health, future prospects, and industry trends.
- Costs: Brokerage fees and other charges can eat into your profits.
- Brokers: Many online brokers in India offer share trading platforms at competitive rates.
- Regulations: SEBI (Securities and Exchange Board of India) regulates the overall Indian stock market.
Before considering share trading, it’s important to educate yourself about the risks and rewards involved in share trading.
In India, share or stock trading is categorized by Investment (how long you hold the shares) and whether you square off the position within the trading day.
Some popular types of Share Trading:
- Long-Term Trading (Investment): This involves buying shares and holding them for several years or even decades. The goal is to benefit from the company’s growth and potentially receive dividend payouts.
- Positional Trading (Medium-Term): This strategy involves holding shares for weeks or months, aiming to profit from mid-term trends in the stock’s price.
- Swing Trading (Short-Term): Traders hold shares for a few days to a few weeks, capitalizing on short-term price swings.
- Day Trading (Intraday): Involves buying and selling shares within the same trading day (typically between 9:15 am and 3:30 pm IST) to profit from intraday price movements.
By Position Squaring Off:
- Delivery Trading: Shares are purchased with the intention of taking delivery (ownership) and are held in your demat account. This aligns with long-term and positional trading approaches.
- Intraday Trading (Squaring Off): Positions are opened and closed within the same day. This applies to day trading, swing trading (sometimes), and scalping.
- Scalping: Scalping is a sub-type of intraday trading involving taking numerous very short-term trades, profiting from small price movements throughout the day.