Equity Trading: How to Trade Equities

Equity markets hold enormous potential require to create wealth. Returns from the equity markets are higher than all other asset classes. However, volatility in the equity market is a factor that scares away new entries in the market. 

Therefore, as new entrants worry about the right time to invest in the equity market for the long term, there is no right or wrong time to invest. However, if you want to trade in the equity market, one needs to make sure that you are not buying stocks at an overvalued price. 

Let us now discuss: the difference between equity investing and equity trading.    

Fundamental Difference

An individual is said to be investing in the equity markets when he/she decides to buy shares of any company and hold them for more than a year.  On the other hand, selling shares of any company within a year is called trading in the equity market. Moreover, the trader exits from the trade position whenever the price hits the target. Even if the target hits within minutes, the trader books profit from the trade. 

What is equity trading? 

 Equity trading is buying and selling equity shares in stock market. Just like, Oceans have tides, the stock market has highs and lows. Thus, traders make money as per the wave.

Types of equity trading:

  • Scalping
  • Day Trading
  • Swing Trading 
  • Positional Trading 

What is equity investing? 

Equity investing means searching for cash-rich companies and staying invested in them for a period. Long-term investing in the equity market generate enormous returns as compared to any other investment instrument. 

For a better perspective. Here are some figures: 

On Mar’06’ 09 Nifty50 closed at 2576. And, on June ’18 ‘ 21 Nifty50 closed at 15683. In nearly 12 years, the Nifty50 index has given out 510.947% returns. Therefore, in 12 years, Nifty50 has generated a Compounded Annual Growth Rate (CAGR) of approximately 16.27%. 

To trade equity in the Indian stock market, you will require these three accounts: A demat, trading, and a bank account.

Demat Account 

A Demat account is used to store all the financial instruments available in the market in a digital or electronic mode. Like a savings account, that takes care of your money. The demat account take cares of all your financial holdings. It is a one-stop solution for holding all financial instruments. 

To open a demat account you have to contact a stockbroker. The stockbroker is a mediator that buys and sells financial securities on behalf of the investors. For this service stock, brokers charge a commission, called a brokerage. Along with brokerage, stockbrokers charge a nominal fee to open a demat account. The fee is popularly known as demat account opening charges.  

Trading Account

A trading account is an account which is used to buy and sell financial securities. For traders who take positional trade in the equity segment, will need a demat account to hold shares. Whereas, day traders do not require any demat account. The trading account acts as the primary account for day traders. 

Bank Account

It is nearly impossible to open a demat & trading account if you do not have a bank account. To open a demat account broker will require proof of bank account, thus, it is mandatory to have a bank account. Also, a bank account helps in transferring funds into a trading account.  

After opening these three accounts, you are all set to trade in the Indian equity market. However, before trading in equity do remember these points. 

  • The stock market works on the basic concept of demand and supply. So, before purchasing any share, always check for its demand in the market. 
  • Before trading in the equity market, gather information and knowledge about technical analysis. You can read books or even do a course on technical analysis.  
  • Always trade within your budget and never over trade. Do not go all-in on a single trade. Instead, divide your capital into10 parts and use 1/10th of the capital for one trade. That way, you will have 9 chances to cover your loss from the previous trade. 
  • Lastly, respect your take-profit and stop-loss target. Do not let your emotions take control over your trade. 

Also read:- What is the Grey Market Premium (GMP) in an IPO?

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