Now comes the most important part: Trading in the market.

All this effort to learn about the market was to understand the stock market and take relevant trades in the market to earn more money. This section explains the multiple types of trades one takes in the market.

The markets open every weekday at 9:00 a.m. sharp. Although trading begins at 9:15, 9:00 to 9:15 is a pre-opening session carried out in the markets. 

From 9:00 a.m. to 9:08 a.m., revocable orders are placed and these orders are given preference when clearance of orders begins. Orders can be changed or revoked during this time and no other orders can be placed during the pre-opening session outside this 8-minute timeframe.

9:08 a.m. to 9:12 a.m. is the timeframe used to determine prices. Opening prices of any security are ascertained by calculating an average of all the buy and sell orders. If there are more buy orders, the stock witnesses a gap-up opening while high selling orders result in a gap-down opening. 

From 9:12 a.m. to 9:15 a.m., the stock market goes through a transition period between the pre-opening and normal trading session. At 9:15, prices are calculated and trading begins in the markets. 

Some of the trade forms used every day are:-

Intraday = Also referred to as Day Trading, it is the practice of buying and selling shares on the same day! A trader specifies an intraday arrangement when buying using which he can purchase more shares than he has money for using Margin. Interestingly, a Day Trader can also sell shares without owning them! However, one drawback of this form of trading is the time. You must close your position, even at a loss, by the end of the day failing which it would be automatically closed!! 

Scalping = Scalping is the practice of placing multiple orders in a short term, normally a day, to achieve multiple small profits from small price changes. Scalpers can place as many as 100 trades a day to profit off of minute price changes! They focus on scoring several small trades, instead of waiting for big price changes, by targeting shares with higher liquidity. These can lower their risk while trading more frequently. 

Swing Trade = Swing trading is a form of trading where traders wait for a major price move from a level that is deemed to be an attractive entry point. These traders analyze the charts and identify key levels that can be used to enter and wait for profitable trades. These trades can range from a few days to a few months!!

There exists a form of trading that is even more challenging called Derivatives. These are contracts where the main purpose of the buyer and seller is to speculate on the underlying asset’s price and hedge their investments by paying a premium to enter into the contract. These contracts are dependent on the performance of financial assets like stocks, bonds, commodities, currencies, and indices.

Although there are 4 types of Derivative contracts, we only follow 2 of them in India:-

Futures = This is a type of derivative contract where the buyer and seller enter into a contract to buy/sell a particular commodity at a predetermined price at a certain future date. At the expiry date, the difference between the strike price and the asset’s CMP is the gain of either the buyer or the seller, depending on whether the price was above the strike price or below it. Both parties are required to honor this agreement if they choose to keep the contract until its expiry. 

Options = Options contracts are similar to Futures contracts. There is a strike price, an expiry, an underlying asset, and so on. However, one fundamental difference between options and futures is that buyers need not comply with the contract. If the buyer’s position is adverse on the expiry date, the buyer can choose to forfeit the contract by abandoning his premium. As such, an option buyer’s losses are limited to his premium, but since the seller has to honor the contract, the seller’s losses are theoretically unlimited!! 

A normal retail investor isn’t interested in all these technically challenging trades. Such an investor only wants to put in money at an attractive low price and hold the asset till it reaches a certain level to exit their position. What he is interested in is called a ‘Delivery’ trade.

A Delivery trade is simply buying certain shares and keeping them in your Demat account for however long it takes: a few days, weeks, months, or maybe even years! This type of trade, which depends on fundamental factors and long-term trends, and ignores small market fluctuations, is called Positional Trading. Here, an investor has to pay the full price for the shares he is buying and cannot sell the shares unless he already has them in his Demat!! 

Delivery trading is fairly simple to conduct. Certain brokerages facilitate personal brokers for investors where retail investors can simply call their broker and tell him to buy/sell certain shares they want!