What is stock trading?

What is stock trading?

As always, it is a good way to start with definitions.

Trading is essentially the exchange of goods and services between two entities. In this context, the entities are investors/traders who exchange stocks of different companies. Stock trading takes place in the stock market.

Source: https://www.biztechafrica.com/
Let’s say we are interested in trading, so how do we start doing it? Simply the steps are next
Open a Brokerage Account: Start by setting up an account with a trusted broker, enabling the purchase and sale of stocks and other securities.

Research and Budget: Investigate companies and analyze financials before investing. Set a budget and only invest what you’re prepared to lose. When ready, traders can then place orders to buy or sell shares of a company through their broker.

Order Types:

• Market Order: Executes at the best available price.
• Limit Order: Sets a specific price limit for buying or selling.
• Stop Order: Executes only once the stock hits a specific price, often used to limit losses.
• Day Order: Valid for the trading day only.
• Good-’Til-Canceled (GTC): Stays open until filled or canceled.
• Immediate or Cancel (IOC): Executes quickly; if not filled instantly, it cancels.
• All-or-None (AON): Fills the entire order or cancels it.
• Fill-or-Kill (FOK): Must execute fully and immediately or not at all.

We know what is trading, but what are the types of it? By answering this question, we will get to know “how we can trade?”.


Source: zeenews.india.com

Types of trading.

1) Day Trading 

Day trading involves buying and selling stocks within a single trading day (9:15 am to 3:30 pm). Traders capitalize on small price fluctuations, closing positions before market close. It requires market expertise and is often pursued by experienced investors.

2) Scalping  

Also called micro-trading, scalping is a fast-paced form of intraday trading where traders make multiple small profits in a day. Holding periods are extremely short, typically a few minutes, allowing frequent transactions. Like day trading, it requires skill and awareness of price shifts.

3) Swing Trading  

Swing traders aim to profit from short-term stock trends, usually holding stocks for one to seven days. Technical analysis is used to identify patterns, making this strategy suited for capturing brief market movements.

4) Momentum Trading  

Momentum traders focus on stocks with strong upward or downward movements. For upward trends, they sell stocks at higher prices; for downward trends, they buy at low prices to sell when values rise. Example: Mr. A earned 90,000 by selling shares of a company showing upward momentum.

5) Position Trading  

Position traders hold stocks for months, focusing on long-term growth rather than short-term gains. It’s ideal for those who aren’t daily market participants or professionals.

Another aspect of quality trading is risk management, it often treated as a backbone of effective investments and the trading in general.

Here are the risk management strategies that can make your trading more weighted:
 

Create a Trading Plan: A solid trading plan sets clear goals, entry and exit strategies, risk tolerance, and stop-loss levels, reducing impulsive decisions and guiding trades with discipline.

 

Use the Risk/Reward Ratio: Assessing potential gains versus potential losses helps determine if a trade is worth the risk. A favorable ratio allows profitability even with a lower success rate.

Set Stop-Loss and Take-Profit Orders: These automatic orders limit losses and secure profits, maintaining capital protection and avoiding emotional trading adjustments.

Choose the Right Assets and Timeframes: Align asset selection and time intervals with your trading goals and risk strategy. Short intervals suit active traders, while longer ones work for swing traders.

Backtest Strategies: Testing strategies with historical data reveals strengths and weaknesses, helping refine your approach, though past results don’t ensure future performance.

Manage Margin Allocation: Avoid over-allocating capital to a single trade. Limiting investment to small percentages (like 1%) minimizes portfolio impact from unexpected losses.

Diversify and Hedge: Reduce risk by spreading investments across asset classes and using hedging strategies to counterbalance market fluctuations.

Risk management lifecycle Source: www.alertmedia.com

Overall, the professional trading is considered an elite craft. To make it informed and efficient, the person needs to be thematically educated and ready to take certain rists. However, with a good approach, the reward will be respective. In our academy, at fondexx, we provide people with an education that teaches to take informed investment decisions.