Beginner’s guide for trading in equities.

The word equities in the financial market generally represent the stock of a company. By buying the equity shares of a company you will get the small portion of the ownership of the company’s stake.

Trading in equities means buying and selling the shares of the public company that are listed on the nation’s stock exchanges.  There are mainly three methods of investing in the equity shares. They are:

•          IPO
•          FPO
•          And, secondary market

IPO means the Initial Public offer. The public company at the time of their formation issues shares to the public through IPO process. The investor willing to buy the company’s share will have to fill up the IPO forms mention their details. After collection of the forms, the company declares allotment of the shares. Finally, the shares allotted will be reflected in the investor's De-mat account.

The second method is the FPO. The term FPO stands for Follow-on Public Offering. It is similar to that of initial public offering (IPO’s). The only differences are that IPO is issued during the time of formation of a company whereas FPO is issued whenever a company needs to expand its capital base.

 

Trading on equities through the secondary market is the most common thing among the public. The secondary market here refers to stock exchanges. The public company has their shares listed on the stock exchanges. Any investor willing to trade on equities through the secondary market has to register themselves on stock exchanges through the stock brokers.  

Now the question arises how the trading of equities in the secondary market operates?

Under secondary market, stockbroker provides a user terminal (i.e basically it is a customized trading software). The investor has to enter the terminal by entering their user id and password. After successful login, they bid for the shares that they are willing to buy or sell. When the bid price of the seller and the buyer get matched, the transaction gets executed automatically. The price at which the transaction executes is known as LTP( Last transaction Price).

The LTP moves up where the market is buyer dominant and it moves down when the seller is dominant. Accordingly, we call it bullish or bearish trend pattern.

Now, let's move towards the method of trading on equities in the secondary market.

In the secondary market (i.e in the stock market), shares are traded either through intraday trading or through interday trading.

Intra-day trading is the trading that is basically followed by the short-term traders. Under intraday trading, the shares are purchased and sold on the same day. By doing so the short term traders keeps an eye on the short term fluctuation on the share’s price. It is considered as a high-risk trade. Even if the price of the shares goes down, the trader has to square off the transaction booking their losses.

Interday trading on the other side refers to the long-term investment in shares. Investor under the interday trading is generally the long-term investor.

Under interday trading, purchase, and sale of the shares of a particular company take place on two different dates. Investor generally holds the shares until the price of that stock move upwards.

Interday trading is further classified into positional trading or swing trading.

Swing trading is the one where the buyer holds the share for about few days and when there is a positive fluctuation in the market they exit their position by selling those shares and book their profits. They are concerned towards the temporary market fluctuation.

Similarly, on the other hand, the positional trader is the one who holds their investment in shares for the time period that ranges from a month till years. They believe that temporary fluctuation will wipe out by time leading them towards the profit zone. They are not concerned about the temporary fluctuation. They always believe in the value trading.

Also read Dividend and it's impact on share price.