Top 6 Types of Trading in the Stock Market

6 mins read
by Angel One
Understand what the popular trading mechanisms are and how they operate within and dominate the Indian stock markets.

When you hear the term “stock market” your mind may think of varied things ranging from investments and trading to indexes and brokerage fees. Given the vast nature of the stock market, it should therefore come as no surprise that there exist a wide variety of trading styles that you have the option to choose from. Your choice should ultimately depend upon what style suits you best and one that is most aligned with the financial goals you would like to fulfil.

Take, for instance, if you desire to grow your money, opting for long term investments may be the most plausible option. However, if you wish to make money at a rapid pace, short term trading may suit you more. Furthermore, if you wish to conduct trading that doesn’t involve delivery being carried forward, intraday trading is ideal.

Each trading style is tethered to its own set of merits and shortfalls. Owing to this very fact, prior to selecting a given trading style it is pertinent that you be aware of all that it entails. This holds true as you will be investing money that you have earned and worked hard for. Educating yourself on trading styles is therefore important.

Different Types of Trading in Share Markets in India

Consider the list below which outlines the different types of trading in share markets in India.

  • Intraday Trading

Also called day trading, intraday trading is best suited to experienced traders. It involves traders buying and selling stocks on the same day. A stock may be entered into any number of times by a trader within a given trading day. The trader has the option to hold these stocks for as short as a few seconds to a few hours or until the end of the trading session. That being said, the trader must close his trade prior to the closing hours of the market commencing. Active traders partake in intraday trading which enables them to earn quick money. Although the potential to make vast returns exists, so do several risks. Traders that partake in this form of trading must be quick on their feet and be able to make decisions with celerity. Owing to this very fact beginners are advised to steer clear of this style of trading.

  • Delivery Trading

Also called position trading, it involves the trader having a focus on the long-term. What this means is that the trader purchases and holds stocks for comparatively long periods of time that range from weeks to months. The primary challenge that exists with this form of trading relates to identifying stocks with large price movements. Under this method, the trader is responsible for finding stocks to purchase after conducting extensive research. The trader is oftentimes involved with assessing technical trends along with projections that indicate a possibility of large price movements. Delivery trading requires the trade to purchase a stock at the time an emerging trend captures his attention. Similarly, it requires the trader to sell said stock when the trend in question reaches its peak level.

  • Short Sell

A popular trading strategy, short selling is best practised by those who are experienced with the markets. This form of trading requires the trader to sell shares that he doesn’t even hold. What this means is that the trader is required to sell first and then purchase the shares prior to the trading session coming to a close. The logic that prevails here is the anticipation of a bearish market owing to which the trader expects the price to drop. Owing to this very fact, he enters a short position to sell shares and then goes on to recover them later by purchasing them when their prices dip. It is important to note that the position must be squared off prior to the market closing. This means that the goal under short selling is to sell shares at a high price and purchase them again for a low price.

  • Buy Today Sell Tomorrow (BTST)

This trading practice sees the trader purchase shares today such that they can be sold the next day. The reason why people partake in this trading style is that they believe the price of the shares will rise by the next day. After purchasing the shares, the very next day when the markets open, traders sell their shares such that they can score a profit. Owing to the quick nature of this trading style the trader does not receive the delivery of the shares as the Indian stock market operates on a T+2 settlement cycle.

It is important to note that there exists a difference between this trading style and delivery trading. As far as the latter is concerned, the trader has to wait until the stocks are delivered to his Demat account in order to be able to sell them. BTST comes into play in the event that an opportunity presents itself prior to the stocks being delivered. Under the BTST model as it is possible to purchase shares and sell them the very next day without having them delivered, the trader doesn’t incur any DP charges.

  • Sell Today Buy Tomorrow (STBT)

This trading style is diametrically opposed to BTST. It involves the trader selling shares today such that they can be bought again tomorrow. While the derivatives market allows for STBT to take place, equity trading does not permit this kind of trading to transpire. Under this trading method, the trader must begin by entering into a short sell such that he can then carry forward this position to the next day where it can be squared off by buying. A trader is likely to engage in this method of trading if he views the market as bearish and wishes to tap into the opportunity such that he can score a profit.

  • Margin Trading

This trading method sees the trader buy and sell securities within a single session. It is popular among those hoping to make fast money and is particularly useful when carrying out futures and options trading. When partaking in margin trading you must purchase a minimum set of assets in a single sitting. The initial margin must be paid by the trader under this form of trading. The margin here refers to the percentage of the traded value in its totality and is determined by the Securities and Exchange Board of India. 

Wrapping Up

As far as the types of stock trading are concerned, there exist several options for traders. That being said, the aforementioned list features the trading styles that are most popular in India. In order to learn more about the markets, trading and stocks, visit the Angel One website.