How To Trade In Stock Market
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There are so many ways in which you can do stock market trading. Here we are presenting some of the most common form of stock market trading including trading in equity segment, margin trading and derivative trading along with the advantage and disadvantage of each type of trading. This will help you find the right way of doing trading at the stock market depending on your fund and your objective of stock market investment.

Equity Segment – This is the most common form of trading stocks. In equity segment you buy the stocks of the companies through your broker. Once the request fro buying the stocks is settled and payment is made the stocks are deposited to the DP account of the investor. Then stocks can be hold or subsequently sold by the investor. The advantage of the equity trading is that there is no time frame for selling the stocks or closing the deal. You can always hold the stocks till you want and then sell it when you think is the right time. But the brokerage charge for equity segment is greater than the derivative segment or margin trading. If you are looking for good returns and do not want to take more risk and if you are ready to hold the stocks for longer period of time, this is the best way for you to invest in the stock market.

Margin Trading – In margin trading that is also commonly known as day trading you have to close the deal by the stipulated time that is generally within the very day of the trading. The biggest advantage of margin trading is that you need not invest the full value of the stocks that you trade in. Though the amount for buying the stocks is determined on the volatility of the stocks, in most cases you need to invest or have 5% to 10% of the total value of the stocks. So while doing margin trading you can hold more stocks with the fund than you could have otherwise bought them at the equity segment in delivery based trading. Another advantage of margin trading is that you can short selling of the stocks. That means you can gain by selling the stocks at higher price and then buying them on the same day at a lower rate. The brokerage of the margin trading is also lower than delivery based trading. 

Derivative Segment – Derivative trading can be done in four different ways - Future, Forward, Options and Swaps. In derivative you actually buy a contract that expires within a stipulated time frame. Usually all the derivative contracts in a specific stock market expires on a particular day of every month. You have to close the deal either by selling or buying the stocks within that stipulated time. In derivative trading the stocks are bought and sold in lot. The number of stocks in a lot varies from one stock to the other and the price of the lot is derived by multiplying the number of the stock with the current price of that stock in that market. The biggest advantage of derivative trading is that you can get the lot by investing only the 30 to 40% of the actual price of the stocks that you will be holding. Moreover, you can gain by short selling the stocks as well that means you can first sell the stocks at higher price and then make profit by getting the stocks at lower price. The brokerage for derivative trading is generally lower than the cash segment if you consider the amount of investment and the number of stocks you hold.

These are the most common ways of doing stock market investment. All said and done you have to choose the way you invest in the stocks. Remember it is not the process but the ability of selecting the right stocks will be the determining factor for making profit from stock investment.

 

 

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