Ever wondered how is trading in a world of interaction-in-person and a world of online exchange of goods and services both at the same time?
The aim of trade is to create money for oneself on a national or international basis.
Michael Marcus quoted-“Every trader has strengths and weaknesses. Some are good holders of winners but may hold their losers a little too long. Others may cut their winners a little short but are quick to take their losses. As long as you stick to your own style, you get good and bad in your own approach”
With so many pros of trading, let us understand how it works.
Money makes money, trade multiplies it and people divide it.
Here is a well-knit article about trading meaning!
Trade drives the wheels of progress in society and serves as a medium for wealth creation. A place where any form of trade takes place is called a market. The market is defined by the kind of products it offers.
For example, a place where stock trading takes place is called the stock market. In the financial markets, trade is effectively the purchase and sale of different securities, commodities and derivatives. Free trade refers to international exchanges of products and services without interruption from tariffs and trade barriers.
Trading is the act of buying and selling goods and services, which includes a concentration of goods and services and their distribution among buyers and equalising the demand then created with supply. It might include intermediaries like middlemen and channel type distribution (agents, wholesalers, retailers).
There are two forms of the market – organised and unorganised. The organised market has a particular set of rules and regulations which needs to be adhered to by every entity in the market and it usually consists of a regulatory body that supervises their behaviour.
In an unorganised market there are no strict rules and regulations, and even if there are, following them is not mandatory.
With the growth of technology, trading is made possible in two ways:
Trade has been in existence for as long as human civilization, i.e. the agricultural revolution. However, the form of trading has varied across different societies and timelines. This is primarily due to isolated human communities which did not allow for the unification of mankind into a single system.
In the past, trading of a different form was prevalent across different societies which were called the barter system where an entity that had a surplus of certain goods and services exchanged them for other services and goods.
However, the barter system was found ineffective due to the lack of any basic standard of measure of the value of products. This forged a way for money which acted as a standard against which the values of all products were measured. This invention made way for a chain of economic and financial developments, for example the introduction of the credit facility, share trading, etc.
Stock trading started with the formation of various joint-stock companies in Europe and played an important role in European imperialism. Various informal stock markets started growing in various European cities. The first joint-stock company that publicly traded its shares was the Dutch East India Company. They released shares through the Amsterdam Stock Exchange.
After joint-stock companies succeeded in fostering economic development along with geographical expansion, they were made a mainstay in the financial world. The first exchange for trading in India and Asia was established in 1875-the Bombay Stock Exchange.
Bombay Stock Exchange and the National Stock Exchange are the two main houses where trading takes place.
There are several types of trading and they are as follows:
This form of trade involves purchasing stocks and selling them off on the same day itself. In case of day trading, individuals hold on to the stocks for a few minutes or hours. Traders involved in such trades need to close their transactions prior to the day’s market closure. This form is popular for capitalising on small-scale fluctuations in the prices of stocks.
Day trading requires a thorough understanding of market volatility and a keen sense of the ups and downs in stock values. Therefore, it is performed mainly by experienced investors or traders.
Scalping is also known as micro-trading. Day-trading and scalping are both subsets of intraday trading. Scalping includes reaping small profits repeatedly. The number of profits may range from a dozen to a hundred profits in a single day.
However, not all transactions yield profits, and in some cases, a trader’s losses may exceed the profits. The holding period of securities, in such a case, is shorter when compared to day-trading, i.e. individuals hold stocks for a few minutes at max.
This feature makes way for the frequency of transactions. Similar to day-trading, scalping also requires market experience, expertise, awareness regarding the market fluctuations, and prompt transactions.
This technique of stock market trading is used to capitalise on short-term stock trends and patterns.
Swing trading is basically used to earn gains from stock within a few days of purchasing it; the ideal span is one to seven days. Traders analyse the stocks to understand the movement patterns that they are following for executing their investment objectives.
In the case of momentum trading, a trader, exploits the momentum of a stock, i.e. a substantial value increase or decrease in the price of a stock. A trader tries to capitalise on such opportunities by identifying stocks that are either breaking out or will break out.
According to momentum investors, you should enter a stock when its price has just started to move up and exit as soon as it starts to fall. The idea behind this strategy is that trade costs often do not reflect their true value for long periods of time and tend to move in one direction for long periods of time.
Momentum trading is a strategy that aims to profit from the continuation of existing market trends. Momentum traders typically buy or sell an asset that is moving strongly in one direction and exit when that movement shows signs of a reversal. They also try to avoid buying or selling assets that move sideways.
Position traders are those that hold securities for months aiming to capitalise on the long-term potential of stocks as opposed to the short-term price movements. This technique of trading is ideal for people who are not professionals or regular participants in the market.
Online trade is the method of engaging in trade with the help of the internet and exchanging goods and services with mutual consent of buyer and seller under specific terms like price, quality, and quantity.
This method of transaction reduces time constraints and improves the utility of time management. Buyers and sellers meet over a virtual platform to strike a transaction without actually visiting a marketing place.
Access to a diverse range of products initiated the online mode and gave it a thrust to beat in-person hankerings after offline trade.
Trading in stocks, securities, schemes, shares and bonds has faced a turbulent positive upbringing in online modes.
Surprisingly, few investors still believe in buying and selling stocks through brokerage firms.
Well, simplicity is the essence of online trading. Traders are the ones who engage in trading and are members of the trade community and digital platforms. We can rely on the fact that trading online has really brought trading on line.
When a buyer searches for any required item on a platform, various items are compared by the exchange platforms and relative items according to the demand of the consumer are shown. The prices of various contenders are compared by the user in order to proceed with the purchase procedure.
If the buyer gets satisfied, the order is placed and is saved in the database of the digital platform. Then the order is to be dispatched by the respective agency and after all these, the price settlement is supposed to be done within three days by the broker and money is received by the supplier.
Thus, it facilitates the transfer of commodities in a digital way rather than marketing in in-person places.
Most often than not, brokerage firms have thousands of clients. It is not possible to take physical orders from each and every client on time. In order, to make this process easy and seamless, trading accounts are opened.
Using this account, an individual can buy or sell orders either online or on their phone, and these orders will automatically be directed to the exchange through the stockbroker.
First, a stock broker or a firm needs to be selected. Ensure that the broker is good and trustworthy and will take your orders in a timely manner. Remember, timing is very important in the stock market.
A few minutes can change the market price of the stock. For this reason, it is important to ensure that you select a good broker.
Compare the brokerage rates. Every broker will charge you a certain fee for processing your orders. Some charge more, and some charge less. Some traders also give discounts on the basis of the number of trades conducted. All of this needs to be considered before opening an account.
However, you should remember that it is not necessary to choose the broker who charges the lowest fees. Good quality brokerage services provided often may result in higher-than-average charges. You may even pay the brokerage in advance to avoid any extra fees.
Next, contact the brokerage firm or the broker and inquire about the trading account opening procedure. Often, the firm sends a representative to your place with the account opening and the Know Your Client (KYC) form
These two forms need to be filled up and submitted along with two documents that will serve as proof of your identity and your address.
Your forms will be confirmed either through an in-person check or on the phone, where you will be asked to provide your personal details.
Once all of this is processed, your trading account details will be given to you. You will now be able to make trades in the stock market.
There are several benefits that one receives from online trading and they are as follows:
Trading online mitigates the cost of intermediaries, agents, brokers and other middlemen.
It reduces the time gap and increases transparency between the traders.
A focused eye watch can be kept on the usage of investment and return from it by logging in to your account. Gains and losses can be compared within a few glances.
An investor can directly initiate trade without brokerage in online mode. It gives you access to your investment and greater control of it within a few moments.
By and large, online trading has overshadowed offline in-person trading, as per the views of the article. But the feasibility of both the trade ways has their own pros and cons. For an individual, anyway can be preferable according to what is the demand of the buyer in particular.
For instance, low-priced commodities, in large quantities, can be bought online mode, which is by far one of the best ways. But high-priced goods, even in low quantities, are preferred to be traded in offline mode as it assures the buyer of the quality and intrinsic value of the commodity/stock.
There are several factors separating online trading from offline trading. To provide an easy understanding of those factors, we have provided an all-encompassing comparison chart between online trading and offline trading.
Serial No, | Basis | Online trading | Offline trading |
1 | Scope | Online trading has a wider scope of selection. | Offline trading has a narrow scope of selection. |
2 | Convenience | Online trading is convenient as one can trade whenever and wherever willy-nilly. | Offline trading is time restrictive as one is subjected to visit during marketing hours. |
3 | Trade easiness | Online trading provides the traders with better ease as no travelling and transportation or meetings are necessary. | Offline trading involves face to face conversation and at times becomes harassing in view of unavailability of goods and services. |
4 | Security | In the process of online trading, faulty payment gateways and scams might lead to loss sometimes. But provides higher security than other modes. | In the process of offline trading, brokerage expenses and unawareness on the part of the client might lead to loss. Usually, middlemen increase the cost of commodities. |
5 | Hasty operations | This mode of online trading is realistic and provides real-time graphs of transactions and any alteration in the value of investment. Updates within a few moments increase the efficiency of business operations. | In offline trading, slower aspects like processing entries take time to settle and orders take time to get placed and completed as human resources are limited. |
In conclusion, online trading works perfectly when certain conditions work in unison with each other. In an economy, internet supremacy, well-established infrastructure, and flawless, uninterrupted communication give online trading an upthrust.
Over the last two years, the graph has tripled in favour of stock trading. Still, the ballpark figure shows that there are nearly 70% of investors are not in the habit of trading online.
It is indicative of the fact that investors are still learning and developing practices for trading online. However, this apple-like trade is not always sweet but rotten at times too. Therefore, one should recognise the risks earlier than dreaming of investment like a cupcake.
From the perspective of an investor, online trading sounds secure and safer. The approach to embarking on investment has some procedures and legal formalities involved at the time of buying shares, bonds, securities and derivatives.
Well, currently the stock trade system is nonfunctional without a stock-broker. NSDL(National Securities Depository Limited) and CDSL (Central Depository Securities Limited) are the two recognised government registered bodies monitoring overall securities, stocks,equity and derivatives.
It acts as a liaison between the depository participant and the investor.
Bottoming out in stock is the phase in which the stock falls to its lowest peak and is anticipated to reach its highest with a rapid increase in the price range in the forthcoming days.
This phase helps the business to recognise the true value of the entities. In the lowest peak time, people would tend to buy the shares, securities, and derivatives and sell during the highest peak times to earn a margin of profit through market price fluctuations.
Earning greater interest on initial investment is quite improbable but not impossible. Greater risk-taking might lead to profitable returns.
Risk and return go hand in hand. Both R’s are highly interdependent. A 10% return on investment can be earnt through real estate earnings.
Paying off existing loans helps to control interest payments and thus saves and adds up to the benchmark of returns.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.