Trading equity is a way of making a common investment. Through this method, companies get the funds needed via the sale of shares or stocks, which are represented through the stock exchange in the market. It is a way any investor can become a part owner of a company. So, they can claim a portion of the company’s profits and shares. Equity trading is carried out on a stock market mainly. This kind of practice can be observed in the case of individual investors. Also, in the case of some companies, such as hedge funds and mutual funds.
On the other hand, investing your money that is hard earned in the stock market to make a profit can be risky. This is because there is no guarantee. Therefore, to make money, you have to know the market. You also need to be clear about the goals before you start trading.
How Does Equity Trading Work?
- First and foremost, one needs to open an account with a stockbroker. The stockbroker mainly acts as an intermediary. This is between who buys and sells stocks for you.
- After you have opened the account, you can select which shares to buy. You could do some research into companies to decide on those you believe would perform well.
- You instruct your broker to buy or sell those stocks as per your choice. You can do it online or over a call.
- Your broker will execute the trade. That simply means buying or selling the respective stocks for you at the prevailing market price.
Types of Equity Trading
There are different ways by which equities are traded. Here are a few common types :
- Scalping—Scalping is a type of trading in which buying and selling equity occurs within seconds or minutes. Also known as micro trading, scalping attempts to profit from minute price fluctuations.
- Day trading—The term day trading suggests any activity of buying and selling within the same trading day. Normally, to profit from small price movements, day trading involves big leverage figures.
- Swing trading—Swing trading is based on changes in market prices. Though it is also short-term trading, it is different from day trading as traders close trades within a few days to some weeks.
- Position trading– Option trading involves holding an open position for an extended period with the expectation that its value will appreciate or depreciate. This period could be weeks or months, making it easier for traders who cannot trade frequently to get on board.
- Long-term trading—Long-term trading refers to positions held by investors for months or years. This trading on equity is also known as “buy-and-hold” trades, as opposed to “buy-and-sell” trades.
What are Equity Options Trading?
Equity Options Trading are specific contracts that allow one the right to buy or sell stocks at a certain predetermined price within some stipulated time. There are two major types of Equity Options Trading:
- Call Options: A call option entitles the holder to buy a stock at a certain price before a given date. In case the price of the stock rises, you buy the stock at the lower price and gain from the action.
- Put Options: A put option grants the holder the right to sell a stock corresponding to a specific price on or before a particular date. Therefore, if the price dives, you can sell the security at the higher price for profit.
How to Trade Equity Options Trading?
Trading Equity Options Trading involves several steps:
- Open an Options Account: Options require a special type of account. You need to open an options account first. Not all brokers deal with options trading; you, therefore, need to find one who does and with accuracy.
- Understand the Options: Trading of options is different from the regular trading of stocks. You need to know precisely how they work before you start trading.
- Choosing Options: Similar to investing in stocks, you have to select the options you want to trade. You could do your homework about the companies and their stock prices to help you make your choice.
- Place an Order: You place an order with your broker to buy or sell these selected options.
- Monitoring Your Trades: After placing of your order, there is definite need to keep a watch on your trades. You might have to take some quick decisions based on the movement of the stock prices.
Risks and Rewards of Trading in Equity
Trading in equity can be very rewarding, but there are associated risks. Following are a few things to consider:
- Potential Rewards: You will potently make much money if you choose good stocks. Stocks do get to grow in value, and some companies pay dividends, which are ways through which shareholders earn payments.
- Potential Risks: It is a fact that the stock may decline in value, and then you lose money. Should you be leveraging, you stand the risk of losing more than what had been invested.
- Market Volatility: The prices of equities are dynamic; what worked today might not work out tomorrow. Though swift changes can generally bring along563 opportunities for profit, they also increase the risk for loss.
Tips to Successful Equity Trading
- Do Your Homework: Before buying the stocks, research the companies. Check out their financial health, products, and future plans.
- Set Limits: Determine the amount of money one is ready to loss and not go beyond that limit. Never invest more than you can afford.
- Stay Informed: Stay updated of news and current affairs expected to impact the stock market. This helps you make informed decisions about share trading.
- Be Patient: Sometimes it takes time for stocks to appreciate in value. One should not panic when the prices go down in the short term.
Conclusion
Equity trading is an excellent means of making money or investing in your future. If you are into day trading, swing trading, or long-term investing, it becomes really imperative to understand how the stock market functions and what are its associated risks. Homework, diversification, and keeping yourself updated may give you the edge while you participate in equity trading.