Nowadays, there are different types of trading options are available in the market. Traders can choose a trading strategy based on their financial goals, the time they want to stay in investment, the risk they can handle, and many other factors.
If you are new to stock trading, we will help you understand the trading types and their merits. So, these different forms of Trading overlap with each other because of the common features they share. For example, technical Trading is similar to intraday Trading, and fundamental Trading shares some characteristics with positional Trading. So before starting with the types of Trading, first look at what Trading is.
What is Trading?
Trading means exchanging goods and services between two or multiple entities. These services can be in the form of bonds, stocks, currencies, shares etc. Trading takes place in a market. There are organised and unorganised marketplaces. Organised marketplaces follow a set of rules and regulations which every entity needs to follow, and there are regulating bodies supervising and maintaining market integrity. An unorganised market needs laws and governing bodies for supervision.
In terms of stock market trading refers to buying and selling equities of listed companies on the stock exchange. Let’s look at the types of Trading so that you can decide which model fits your investing style.
Types of Trading
In general, trading is broadly divided into two types: one is short-term, and other is long-term. But when you categorise Trading based on investment strategy, there are two types: fundamental and technical. Moreover, the trading classification is based on time duration, which divides it into different categories. So let’s see five major types of trading.
1. Intraday Trading
Intraday Trading, or Day Trading, involves buying and selling stocks daily. If the trader buys shares for intraday trading, then it is required that you sell those at the end of the trading session.
Intraday Trading is famous for capitalising on small movements or fluctuations of the stock’s NAV Value ( Net asset value), which represents the entity’s net value and is calculated by the value of assets minus its liabilities and divided by the total number of shares outstanding).
Intraday Trading requires a thorough understanding of the market and a keen sense of the ups and downs in stock values. Therefore majorly, it is performed by experienced traders or investors.
This type of Trading is also called micro trading because of the time duration involved. The trader can make several short-duration trades to gain small profits. The number of scalp trading can range from dozens to hundreds. However, every transaction doesn’t mean profit. Sometimes the trader’s total loss can be more than the total profit earned by Trading.
The time duration for holding assets or securities is very small in scalping when compared to day trading. This time duration can be in minutes for any individual stock. Similar to day trading, scalping requires experience in the market and awareness of market fluctuation.
3. Swing Trading
This stock trading style mainly focuses on capitalising on short-term market trends and patterns. In simple terms, it can be expressed as the swing trader aiming to buy a stock when the prices are low and sell it when the cost of that stock becomes higher.
A trade can last from one day to seven days in swing trading. Swing trading involves analysing the short terms trend to measure the market patterns to execute the transaction.
4. Momentum Trading
Momentum trading is one of the types of Trading in which traders aim to capitalise on the stock’s momentum. Traders will base their trading decision on the direction of the trend by selecting the stocks that are in an upward or downward trend.
For example, the trader will sell the stock for a higher profit if the ongoing momentum is upward. Conversely, when the momentum is downward, the trader will look at the strategy to buy stocks at a lower price.
5. Position Trading
Position Trading is a form of Trading called the buy-and-hold strategy. It requires traders to maintain their position for the long-term and ignore the slightest fluctuations or movements in the market.
Position Trading yields profit when the trader waits for a significant period before selling off. This type of Trading is ideal for investors who are not professionals or regular market participants.
If you are a beginner in stock market trading, then you must know the major types of trading. As discussed above, these are some of the significant market trading types. Now you must choose trade practices that match your objectives and risk tolerance. Trading can be profitable, but it is a high-risk venture as well. As a result, it is always advisable to begin trading under the supervision of any stock brokers with years of expertise and technical understanding of this field.