What is Trading? Types, Strategies & Basics for Investors

Trading is the act of buying and selling financial assets like stocks, bonds, commodities, or currencies with the aim of making a profit. Unlike long-term investing, trading involves more frequent transactions based on short-term market movements. Whether you're a seasoned investor or just starting out, understanding how trading works can help you make informed financial decisions.

The concept of trading dates back to ancient civilizations, where goods were exchanged through the barter system. With time, physical commodities evolved into paper instruments, eventually paving the way for modern financial markets. The advent of digital platforms has now made trading accessible to almost anyone with an internet connection and a trading account.

Trading in the stock market can be categorized into different styles depending on the time horizon, strategy, and risk appetite:

• Intraday Trading: Buying and selling stocks within the same trading day to profit from small price movements. All positions are closed before the market closes.
  

• Swing Trading: Holding stocks for a few days to weeks to capture short-term price swings or trends.
  

• Positional Trading: Holding positions for weeks or months based on long-term trends and often supported by fundamental analysis.
  

• Scalping: Executing multiple trades in a single day for small profits, relying on high frequency and speed.
  

• Momentum Trading: Trading stocks showing strong upward or downward trends with high volumes, aiming to ride the momentum.
  

• Delivery Trading: Buying shares and holding them beyond one day without immediate plans to sell; suitable for long-term investors and beginners.

These trading types cater to different investor styles, helping each participant align strategy with their financial goals and risk tolerance.

Trading works through stock exchanges where buyers and sellers place their orders using brokers. Here's how the basic process looks:

1. Account Opening: You open a trading and demat account with a registered broker.
   

2. Placing Orders: Buy or sell orders are placed via trading platforms.
   

3. Order Matching: Exchanges like NSE or BSE match buy and sell orders based on price and availability.
   

4. Trade Execution: Once matched, trades are executed, and settlement occurs via clearing corporations.

This structured process ensures transparency, efficiency, and security in the buying and selling of shares.

While both aim for financial growth, trading requires constant monitoring and decision-making, whereas investing is more passive and long-term in nature.

Traders can access a wide range of markets and instruments depending on their goals and risk profiles:

• Stocks: Equity shares of companies listed on stock exchanges.
  

• Derivatives: Futures and options for hedging or speculative trades.
  

• Commodities: Gold, silver, crude oil, etc.
  

• Forex: Trading currency pairs like USD/INR or EUR/USD.
  

• Cryptocurrencies: Digital assets like Bitcoin, Ethereum, etc.
  

• ETFs and Mutual Funds: For diversified exposure to multiple assets.

Trading offers diverse opportunities for those willing to understand the markets, manage risks, and develop disciplined strategies. Whether you're aiming for short-term gains or building long-term wealth, knowing the basics is the first step to becoming a confident trader.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.