Stock Trading: What is It? & How To Trade Stocks on Espresso

What is Stock Trading and How to Trade in Stocks?

Stock trading is the buying and selling of shares of a company in the stock market. It allows traders to closely monitor the share market and make short term gains by buying shares at low prices and selling them at high prices.

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However, since stock trading carries a high risk and is extremely volatile, some traders can suffer a loss if they do not know enough about the stock market or if they are new to the concept.

Let’s start by understanding the basics of stock trading to know the seemingly but not actually complex process of how stock trading is done.

Highlights

  • Stock traders trade in equity securities while stock investors invest their funds to buy securities.
  • New stock traders have to learn the strategies to make a profit in stock trading and can pen down the points from experienced stock traders.
  • Traders use technical analysis to forecast how a stock will perform.

How to Trade Stock?

There are a few easy steps to start trading in stocks:

  1. Open a trading account: You can open a trading account with the help of a broker.       Brokers can help in case the investor is new to the share market and is not sure how and from where to get started. It is not necessary to transact immediately after opening a trading account. You can invest when you are ready and have sufficient funds to invest in stocks.
  2. Understand the market: For new investors, it is necessary to understand the stock market well. You can do so by regularly watching the prices of shares, reading financial articles, visiting relevant websites, keeping track of the news, etc.
  3. Learn how to analyse the market: You need to learn technical analysis and know-how to read charts to trade in the share market and earn profit.
  4. Practice how to trade stock: Paper trading is a good way for a novice to watch all the market activities in real-time and gradually build their foundation towards buying and selling the right stocks at the right time. It usually entails the use of a stock market simulator that mimics the performance of the real stock exchange.
  5. Evaluate your return from the set benchmark: It is important for every trader, whether active or not, to evaluate their earned return from the desired benchmark. A simple way to do this is by turning your vision toward low-cost index mutual funds. An index fund is a basket of stocks whose performance roughly resembles that of the benchmark it follows.

How Does Stock Trading Work?

To trade in the stock market, you should know the basics of trading. There are several participants involved in stock trading. It is through these participants that the trading takes place. Let’s learn about:

  • SEBI (Securities and Exchange Board of India): SEBI is the regulatory body to govern the stock market. It ensures transparency and protects the interest of investors.
  • Stock exchange: This is the platform where investors deal in securities, stocks, and derivatives. There are primarily two stock exchanges:

Bombay stock exchange (BSE): SENSEX is the main index of BSE. It lists the top 30 stocks listed on this exchange.

National stock exchange (NSE) NIFTY is the main index of NSE. It enlists the top 50 companies which trade on the NSE.

  • Brokers: They are the middlemen who do the buying and selling of stocks for the investors. For this, they charge commissions termed brokerage.
  • Traders: Traders are individuals who buy and sell securities to become part of the company.
  • Stock market: There are two main types of stock markets - one is known as a primary market, and the other is a secondary market. The primary market refers to the market where securities are dealt with for the first time through an Initial Public Offering (IPO). The secondary market is the market where securities are purchased and sold after they are listed as IPOs.

Trading in the Stock Market

Once the share is listed on the stock market, these shares are traded by brokers and investors. You can purchase the shares after analysing the market. For the same share, the stock exchange looks for a sell order. After locating a seller and a buyer, a price is agreed upon to complete the transaction.

Following this, your broker receives a notification from the stock market that your order has been confirmed. The broker then passes an order of confirmation to you. The purchase and sale of securities take place in T + 2 days which is also known as the settlement cycle.

To Sum It Up

Stock trading is the process where traders aim to make stock purchases at low prices and then sell those stocks when their prices are high, thereby making a profit. Investing in stocks can be made easy and a profitable endeavour if it is done after obtaining the required knowledge and after putting in enough practice hours.

 

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Frequently Asked Questions

Almost every stock, bond, or mutual fund can be purchased online.

According to experts, internet trade is just as safe as physical trading because financial transactions are always secure.

There is no such thing as a great time to buy a stock because it all relies on your trading or investment goals. Traders should buy when the negative risk is low, and investors should buy when the upside potential is large.

You can get stock-related information from a variety of places. Prices can also be seen on news and finance websites. Above all, you can acquire the majority of your stock information, as well as call to action, from your broker's trading interface.

You can have multiple Demat and trading accounts. These may, however, involve many brokers and firms. This is because you will have to pay maintenance fees for each of these accounts, which might become a pricey endeavour in the long term.