Different Types of Stock Trading

Based on duration of stock holding, the different types of stock trading can be classified as:

• Day Trading: It is a type of stock trading where both buying and selling of a financial instrument is done on the same day and all the tradings are closed before the market close for the day. Traders who participate in day trading are called active traders or day traders. Day trading demands fast decision and fast action. This type of stock trading is not advisable for a beginner.
  Some of the methods of day trading are:

1. Arbitrage: Arbitrage a kind of hedged investment meant to capture slight differences in price. When there is a difference in the price of something on two different markets the arbitrageur simultaneously buys at the lower price and sells at the higher price.
2. Market making: Market Makers are appointed by stock exchanges like The New York Stock Exchange (NYSE) and American Stock Exchange (AMEX), NASDAQ Stock Exchange and London Stock Exchange (LSE) to continuously provide ask and bid rates for the brokers to buy and sell the stock in these exchanges.
3. Momentum Day trading: It is a method of stock trading, where in a trade is made, when the stock is making a trending movement and the trade is closed at the end of the day.
4. Pattern trading: As the stock prices move up and down, they tend to form recognizable recurring designs or figurative diagrams, called chart patterns. Trading these patterns gives us more consistent profitable trades.
5. Scalping: It is a technique of trading and profiting in stock market. It is a day trading strategy and focuses on taking very small profits from hundreds of trades. It involves taking quick and small profits, using the ask and bid differences.
6. Rebate trading: It is a technique of day trading and profiting in stock market. Here instead of trader paying the commission for buying and selling, he is being paid by the service provider. ECN rebate is the primary source of profit.
7. Price action trading: It is a technique of stock trading and profiting in stock market. This is a simplistic and minimalistic approach to trading. This approach considers action of price only, that is open, high, low and close of a time period. The time period can be a minute, five minute, thirty or sixty minute. Some traders consider volume also for decision making, though it is optional. The trade is closed on the same day of opening.
8. Swing trading: It is a technique of stock Trading. The trade is taken at the beginning of the price swings and closing at the end of the price swing and on the same day of opening the trade.
9. Trading the news (news playing): It is a technique to trade any financial instruments, profiting on price fluctuation, that follows a sensitive news release. The trade is closed on the same day of opening the trade.

• Short Term Trading:A trade period of more than one day to a few weeks is considered as short term trade. A stock is bought and held in position from one day to a few weeks. A short trade is entered by creating a sell position, which is covered by buying after one day or in a few weeks.
  
  
  Swing trading and pattern trading are examples of short term trading.

• Medium Term Trading: A trade period from a few weeks to a few months is considered as medium term trade. A trend is followed with tailoring stop loss.
  
  
  Swing trading with higher time period (for example using weekly bars) and Elliot wave trading are the methods suitable for this types of stock trading.

• Long Term Trading: In this type of stock trading, stock is held for many months to many years. Investment decision is made by fundamental analysis of a stock. Profit from growth of the company, dividends and bonuses attracts this type of stock trading.

About DreamGains

Dreamgains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide "Real value for money" to all its clients.

Stocks vs Futures

There are plenty of differences between the cash segment of the capital market and the futures segment. Here are few of the easy to understand differences.

1) Ownership

When you buy shares in the cash market and take delivery, you are the owner of these shares or you are a shareholder, until you sell the shares. You can never be a shareholder when you trade in the derivatives segment of the capital market.

2) Holding period

When you buy shares in the cash segment, you can hold the shares for life. This is not true in the case of the futures market, where you have to settle the contract within three months at the very maximum.

3) Dividends

When you buy shares in the cash segment, you normally take delivery and are a owner. Hence, you are entitled to dividends that companies pay. No such luck when you buy any derivatives contract.

4) Risk

Both, cash and futures markets pose risk, but the risk in the case of futures can be higher, because you have to settle the contract within a specified period and book losses. In the case of shares bought in the cash market, you can hold onto them for an indefinite period and can hence sell when prices are higher.

5) Investment objective differs

You buy a contract in the derivatives market to hedge risk or to speculate. Individuals buying shares in the cash market are investors.

6) Lots vs shares

In the derivatives segment you buy a lot, while in the cash segment you buy shares.

About DreamGains

Dreamgains Financials India Private Limited formed in 2004 as an independent and privately owned company is build upon the principles of teamwork and partnership.It is a trusted name in the financial service arena and provides you with an entire gamut of services under one roof. It today has emerged as a premium Indian stock consultancy, with an absolute focus on business and a commitment to provide “Real value for money” to all its clients.