What is Trading?

Trading is the underlying principle of all economic systems and financial exchanges. Any culture's capacity for growth depends on trade. A market is where all types of commerce transpire, including the stock market for share trading.

Markets comprise two categories: organised/structured and unstructured. Every business operating in the market must abide by a set of rules and regulations, and there is often a regulatory body to monitor this compliance. Unorganised markets do not have stringent rules and regulations; even if they did, there is no obligatory compliance. The procedure has become more convenient with online trading and investment, as most markets are mimicked on the internet.

Financial markets facilitate trading stocks, mutual funds, commodities and more. You can gain exposure to markets such as the S&P 500 and the FTSE 100, international currencies such as the US Dollar and the Japanese Yen, and even commodities such as lean hogs and cattle.

To get started, investors need to sign up for a platform that provides access to these markets. These platforms include several financial markets that allow you to determine whether an asset's price will grow or fall. Additionally, these platforms share a beginner’s guide to trading to help users get acquainted.

There are over 15,000 to 17,000 financial assets and marketplaces to trade, including:

• Shares
• Indices
• Forex
• ETFs
• Bonds
• Commodities
• Interest rates
• IPOs
• Themes

The goal of trading remains the same: to turn a profit, regardless of the trading instrument. You will make a profit if you acquire an instrument for less than its worth when you sell it. However, if you sell it for less, you will lose money. It is crucial to remember that trading is inherently risky. You may lose more than you anticipate if you do not take the necessary risk management precautions.

History of Trading

Trade began in primordial times. It was the primary means of exchange for prehistoric people, who bartered products and services with one another before modern money was even imaginable. According to Peter Watson, long-distance trading began approximately 150,000 years ago.

Trade occurred throughout most of documented human history. Since 3000 BC, materials for jewellery production have been exchanged with Egypt. Long-distance trade routes were originally established by the Sumerians in Mesopotamia in the third millennium BC when they traded with the Harappan civilisation of the Indus Valley.

Furthermore, the global economy relies heavily on trade. From the dawn of Greek civilisation through the collapse of the Roman Empire in the fifth century, profitable commerce carried rich spices from the Far East, particularly China, to Europe. The fall of the Roman Empire and the subsequent Dark Ages brought instability to Western Europe and brought the trading network to a halt.

Although some trading did take place, the Radhanites were a medieval group of Jewish merchants who dealt between Christians in Europe and Muslims in the Near East. From the end of the fourth century AD until the eighth century AD, the Sogdians governed the East-West trading route known as the Silk Road.

From the 8th to the 11th centuries, the Vikings and Varangians traded as they sailed from and to Scandinavia. Varangians travelled to Russia, whereas Vikings sailed to Western Europe. In 1498, Vasco da Gama revived the European spice trade. Before his voyage through Africa, Islamic states, particularly Egypt, controlled spice flow into Europe.

The spice trade was extremely important economically and contributed to the Age of Exploration. Spices sent to Europe from other regions were among the most precious commodities for their weight, rivalling gold at times. Holland was the epicentre of free trade in the 16th century, imposing no exchange barriers and fighting for the free circulation of products.

Adam Smith wrote "An Inquiry into the Nature and Causes of the Wealth of Nations" in 1776. Mercantilism was attacked in this study, and it was suggested that economic specialisation might benefit nations and companies. Since the division of labour was limited by the size of the market at the time, he predicted that nations with access to larger markets could divide labour more effectively and become more productive.

Stock trading emerged in Europe with the development of joint-stock firms. It played an important part in European imperialism. Informal stock exchanges began to proliferate in several European locations. The Dutch East India Corporation was the first joint-stock company whose shares were publicly traded on the Amsterdam Stock Exchange. Following the success of joint-stock corporations in supporting economic development and geographical expansion, they became a global financial cornerstone. The Bombay Stock Exchange, founded in 1875, was the first exchange for internet trading in India and Asia.

Types of Trading

There are various types of trading, including the following.

• Scalping

  Also known as "micro-trading”, day trading and scalping are subgroups of intraday trading. Scalping entails reaping modest earnings frequently, with rewards ranging from a dozen to a hundred in a single market day. However, not every transaction results in profits.

  In certain situations, a trader's total losses may surpass their winnings. In this scenario, asset holding times are shorter than day trading, with investors only holding stocks for a few minutes at most. This feature enables transaction frequency. Scalping, like day trading, necessitates market expertise, proficiency, market knowledge, and rapid transactions.

• Day Trading

  This type of trading includes buying and selling equities on the same day. In day trading, individuals own equities for a few minutes or hours. Traders engaging in such activity must complete their transactions before the market closes for the day.

  It is the most popular trading type for profiting from small-scale variations in stock NAV. Day trading necessitates market knowledge, a complete awareness of market volatility, and a sharp feel for the ups and downs in stock prices. As a result, it is generally carried out by professional investors or traders.

• Swing Trading

  This trade helps investors profit from short-term stock trends within a few days of acquiring them. Swing traders typically use technical analysis (charts, patterns, and so on) to forecast market direction.

• Momentum Trading

  In momentum trading, a trader takes advantage of a stock's momentum. Stock momentum is a significant value movement of the stock, either upwards or downwards. A trader chooses stocks that are breaking out or will break out to capitalise on such momentum.

  During an upward trend, the trader sells the equities they hold, resulting in higher-than-average gains. When the market falls, the trader buys many stocks to sell when the price rises.

  For example, an investor owns 9000 shares of Shiveg Pvt Ltd for Rs. 40 per share. They anticipate that the NAV of the shares will increase on April 1, 2022. On the first day, they decide to sell 3000 shares for Rs. 80. The remaining shares are then sold at a uniform pricing of Rs. 65.

  As a result, their total profit from the deals is - Rs. {(5000 * 80) + (4000 * 65)} – (9000 * 40)= Rs. 300,000

• Position Trading

  Position traders hold shares for months, hoping to profit from equities' long-term potential rather than short-term market changes. This type of trading is appropriate for people who are not market specialists or frequent market participants.

Impact of Online Trading

The internet has substantially aided in the advancement of stock market trading. Securities are becoming more accessible and convenient for everyone. Individuals in India may now readily trade in the stock market via the internet.

Mutual funds have grown in popularity with the introduction of internet trading. Individuals may immediately access MFs and other assets from a wide online reservoir of alternatives. Investors now have more opportunities to trade actively and speculatively, increasing their chances of building wealth.