Before knowing about the type of trading that is best for beginners, we must understand in detail about the trade.
TRADE
Trading started in ancient times with the exchange of goods, then after with valuable metals, after the development of currency(later by cards and crypto) buying was separated from selling with earning that leads to investment for earning more.
Conventional ways
Conventional trading was to buy at a low price & sell at a higher price to gain profit, followed by bulk purchase & sales as a wholesaler having no risk.
Later use of unethical ways like holding stock to create an artificial shortage to increase demand hence the value, due to globalization & increase in production restricted the unethical means in business.
SHARE MARKET
Plenty of markets similar to the stock market started in the 12th & 13th centuries, which traded debts on agriculture on behalf of banks and brokerage was started, and government securities were been traded by banks.
East India Company was the first company to issue paper shares(Stocks without holding physical stock) to merchants( investors) for ships, due to the risk of investing in one ship threatened by pirates, swanking due to storms in the ocean, merchants started investing in small companies to lower risk at one point resulted in the establishment and conversion of small companies to big giants.
Later shares of companies were sold to investors through equity crowdfunding with certain securities and agreements called Bonds.
Equity crowdfunding is the process of issuing shares(stocks) to people(crowd) in the initial stage of companies that are unlisted on the Stock Exchange. A shareholder has partial ownership of the company and gets a profit share of the company if the company do well.
A Stock Exchange is where buyers, traders, investors and stockbrokers (who earn commission on buying and selling) buy and sell stock, bonds and other securities.
There is more than 60 stock exchange globally doing business in the trillion dollars, many big companies have listed their stocks in one or more stock exchange in different countries hence making this market more attractive for investors.
East India Company was the first company to issue paper shares(Stocks without holding physical stock) to merchants( investors) for ships, due to the risk of investing in one ship threatened by pirates, swanking due to storms in the ocean, merchants started investing in small companies to lower risk at one point resulted in the establishment and conversion of small companies to big giants.
Later shares of companies were sold to investors through equity crowdfunding with certain securities and agreements called Bonds.
Equity crowdfunding is the process of issuing shares(stocks) to people(crowd) in the initial stage of companies that are unlisted on the Stock Exchange. A shareholder has partial ownership of the company and gets a profit share of the company if the company do well.
A Stock Exchange is where buyers, traders, investors and stockbrokers (who earn commission on buying and selling) buy and sell stock, bonds and other securities.
There is more than 60 stock exchange globally doing business in the trillion dollars, many big companies have listed their stocks in one or more stock exchange in different countries hence making this market more attractive for investors.
TYPES OF TRADING
SCALPING TRADING:
Scalping trading is buying and selling in a short period and with small quick profits with rising rates, with alertness since many small gains may convert into losses if one big loss happens.
Normally trading foreign exchange(called Forex trading) and commodities trading is been done by this method.
Commodities are three types
1 Metal: Gold, Silver, Copper and platinum come in this category.
2 Agriculture: Wheat, Sugar, Soybean, oils etc
3 Energy: crude oil, natural gas and gasoline are energy-based commodities.
Scalping trading is advisable for the person who can make quick decisions and bear the stress. They can earn by doing many deals.
DAY TRADING:
As the name indicates trading done in a day is called day trading, it's less stressful as compared to scalping trading. you can do more than one deal in a day. It is best for beginners.
Mainly financial instruments trading is been done in day trading. Consistently the most popular ETF(an exchange-traded fund collection of securities such as stocks) among day traders is the SPDR(trademark of standard & poor financial services) which is a subsidiary of S&P GLOBAL.
SPDRs are index funds initially based on the S&P 500 index.
Trading the same one or two stock(s) every day makes you an expert in it.
Watch two to four stocks' volume & volatility & select to trade the same stock throughout the week.
Look for the stock to trade daily.
MOMENTUM TRADING:
Momentum trading is to follow the rate trend & act accordingly.
In an asset market price momentum is the speed & direction of an upward or downward price trend called the momentum effect which may last longer in the coming days.
Looking at the momentum effect & calculation investors buy stocks showing a price rise & sell stocks showing a down price.
In scalping trading, traders jump in & out as the market moves while in momentum trading traders jump in after waiting & looking at the trend at the right time.
SWING TRADING:
Swing trading is to trade to gain profits over a while maybe a few days or weeks.
Swing trading is also best for beginners provided you keep a continuous watch on the swing and sell before the decline in prices. Here I will also suggest not being greedy.
Swing trading is an expansion of time-of-day trading.
It's short-term trading used to trade stock and options.
Options in finance is a contract given to the buyer( holding option) that gives him the rights to buy & sell an asset or instrument at a specified strike price on or before the specified date.
POSITION TRADING:
Position traders hold the asset for a longer period of up to years. They don't worry about the small swings & momentum effects. They aim to profit from the move of the primary trend. As a beginner, position trading is best since you purchase when the issue is open or from the market when it's at the lowest price.
CFD TRADING:
It's the contract of difference between buyer & seller where the seller assures to give the difference between the current value of the asset and its value at contract time.
TYPES OF STOCKS
Mainly two types of stock
Common stocks:
Common stocks or common shares are securities that provide partial ownership in the company and voting privileges while electing the board of directors.
The common stockholder may get the variable dividend which is the sum of money paid regularly(annually) as part of the profits of the company but some companies don't pay.
Common stocks, however, are regulated by the ups and downs of the market depending upon demand and supply.
Preferred stocks:
A stock that entitles a fixed dividend which can be paid monthly or quarterly is the preferred stock and has priority over common stockholders. Since the fixed dividend is assured no voting rights are been given.
Like Bonds, preferred stock is affected by interest rates when interest rates are high value of preferred stocks declines & vice versa.
Preferred stocks have the combined feature of debt( of which fixed dividend is paid) & of equity which provides the difference between the value of the asset & liabilities if you own a house for around $35000 & have a loan on it for around $20000
in that case, $15000 is the equity of the house.
Which stock to trade?
Trade liquid stocks only mean the stocks that can be easily converted into cash, the stock having enough shares & can be sold easily without disturbing the price of the stock. Shares of Reliance, Tata Motors, SBIN, TCS, and ICICI Bank are considered liquid stocks.
Stocks of Blue-chip Companies like Microsoft, Walmart, Disney, McDonald's, ITC, ONGC, HDFC Bank, and Sun Pharmaceuticals.
Stocks of Blue-chip Companies like Microsoft, Walmart, Disney, McDonald's, ITC, ONGC, HDFC Bank, and Sun Pharmaceuticals.
Blue-chip stocks are of the top three leading companies in their sectors and are best for investment & trading.
Stay away from a volatile stock, the stock whose prices fluctuate dramatically over a short period on either side. Although experts used to earn from this fluctuation.
Watch the trend carefully & act accordingly
Pick up the stock with your own research.
May consider mutual funds managed by professionals who invest in securities by making the pool of many investors may be an individual or financial institution.
Watch the trend carefully & act accordingly
Pick up the stock with your own research.
May consider mutual funds managed by professionals who invest in securities by making the pool of many investors may be an individual or financial institution.
Related Pages:
The risk is that you have to rely on the professionals to whom you pay fees & expenses.
LAST BUT NOT LEAST
Trading is an investment in the business. The risk involved in every business may be less or more but considering profitability every businessman or common man is attracted towards trading thinking he/she will overcome the hassles.
Yes, you can earn provided you carefully choose the stocks & take the decision at the right time.
GOOD LUCK
ENJOY EARNING ONLINE
Good post ��
ReplyDeleteThank you
DeleteI had no idea that there were so many different kinds of trading - that was really interesting to read. Thank you for breaking it all down like this.
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