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What is Equity Trading? Meaning, Benefits and Types

Oct-17-2019Blog by – Mr. Dhruv AjmeraRead Time: 3 Min.Word Count: 712151 What is Equity Trading? Meaning, Benefits and Types

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Equity trading is synonymous with stock market trading in India. If you are trading on the stock market, then you are an equity investor. Let’s understand equity trading in detail.

What is Equity Trading?

Equity trading refers to the buying and selling of company shares. Here, equity is defined as the value of shares issued by a company for trading purpose on the stock market. The equity market is an integral component of a company’s financial asset base. When companies issue shares, they become publicly traded. This means that they can raise additional funds to finance their existing operations, expansion plans or any other company purpose.

When you buy the stocks of the company as an equity investor, you become partial owners. When you sell the stocks, you lose the ownership to the extent of the number of shares or its equivalent value sold. Basically, equity trading by investors is done to profit from the difference in the buying price and selling price of the share.

All equity investors need to open a Demat account through which they can buy and sell stocks in dematerialized form or electronic format. A Demat account enables you to do online equity trading with ease. However, you can open Demat account only with a stockbroker registered with stock exchange.

Types of Equity Markets

There are two types of equity markets:

Primary Market: Here, the companies issue the securities to the general public for the first time through Initial Public Offering (IPO).
Secondary Market: Here, securities issued in the primary market are traded through buying and selling. It is similar to an auction market.

In India, the equity shares are traded in the secondary market comprising Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These stock exchanges list common equity as well as other security types such as convertible bonds and corporate bonds.

Types of Equity Trading

Every equity trader has his or her own trading style. So, there are different types of equity trading, as listed below:

Intraday Trading: This is a type of trading where investors buy or sell shares on the same day. From a few seconds or hours to multiple sessions, investors square off their deals before the closing of market.
Swing Trading: This is short-term trading which usually lasts from a few days to several weeks. Investors look for smaller gains and reduce their losses quickly.
Positional Trading: This is a long-term trading strategy in which stocks are held for several months to make large gains from dominant trends. Positional traders are usually called passive investors.
Fundamental Trading: A trading style more suitable to buy-and-hold long-term investors, fundamental trading is focused on company-specific events such as mergers/acquisitions, reorganization, earning reports, industry performance, etc.
Technical Trading: Technical traders buy or sell by doing a technical analysis of past and future price movements through charts and graphs.

Benefits of Equity Trading

Many people shy away from equity markets because they think it is very risk and heavy fear losses. While stock trading is certainly prone to market fluctuations, knowledge of trading fundamentals and a close watch on daily market trends can cut down to the losses to minimum. Here are some reasons why you should consider equity trading:

Additional Investment Instrument: Equity trading gives an additional investment avenue other than bank fixed deposits, other debt instruments, gold and real estate. People who have a slightly higher risk appetite and looking for diversification of portfolio can benefit from stock markets.
Higher Returns: While traditional debt instruments are high on safety, the returns are low and have reduced in the last few years. Whereas, returns on equity trading are usually higher within a short span of time in spite of market fluctuations.
Higher Liquidity: Unlike conservative instruments, most equity stocks do not have any lock-in period and can be easily liquidated as and when required.
Varied Choices: Equity traders have several choices ranging from common stocks and corporate bonds to mutual funds and derivatives to suit their budget, time frame and risk tolerance.

Whether you are a beginner or a pro in equity trading, it is advisable to seek professional services of reputed stock market brokers/agencies. You can leverage their expertise and save yourself considerable time and efforts in managing your equity investments.

Also read: How To Select Best Financial Advisor?

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