Types of Trading in Stock Market: A Comprehensive Guide for Investors

1. Day Trading

Day trading is one of the most common types of trading in stock market. As the term “day trading” implies, day traders buy and sell stocks on the same day. Since traders have to close positions on the same day, traders must dedicate enough time and attention to the market in order to place orders at the right time and make informed decisions.

Although day trading can be profitable, it also contains high risks. This type of share trading is suitable for traders who can spend hours on their screens analyzing the charts during market hours.

2. Swing Trading

Wing trading is another strategy among all types of trading in stock market. This approach is convenient for traders who cannot monitor the market continuously as day traders do. In swing trading, traders hold positions for longer periods of time and focus on making profit from short to medium price fluctuations. Swing traders monitor the price fluctuations in stocks and make profit. This strategy can be highly effective for traders, if they can accurately predict price movements.

3. Position Trading

In this approach, traders do not seek short-term profit from price fluctuations, but focus on long-term potential of a stock and hold their stock even for months.
Traders who have thorough understanding of the market and are patient can adopt this strategy. In comparison to day and swing trading, position trading bears lower risks and is a safer alternative for beginners.

4. Scalping

Scalping is one of the most challenging types of trading in stock market. Scalping is a type of day trading, but involves numerous trades in a day, with a high-frequency strategy . Scalpers frequently analyze the market to take advantage of price changes by holding a position even for a few seconds.
Scalping requires constant attention ,quick decision making and high observation skills to accurately place orders.

5. Momentum Trading

Among all types of trading in stock market, Momentum trading is one of the easiest. In this approach, traders buy stocks that are inclined towards one direction. Momentum traders profit by riding the wave as the trends continue in one direction for some time. They should predict stock’s movements in order to identify the right time to exit or enter.

7. Algorithmic Trading

Another type of trading in stock market is algorithmic trading. This approach relies on computer programs and algorithms based on predefined criteria.

Algorithmic trading is usually used by institutional investors who invest in large amounts. So far, this strategy is more complex than the others. The algorithms analyze data and execute trades at a much higher speed than humans. Also, as it is computer-based, it works based on data and executes the most efficient trends, and unlike humans, it is not affected by psychological and emotional factors. However, due to its total reliance on computers, technical failures in software and hardware can frustrate the process.

8. High Frequency Trading (HFT)

High frequency trading is one of the most advanced types of trading in stock market which can benefit the traders. HFT is a kind of algorithmic trading that uses computer programs to identify trading opportunities and execute a large number of orders at very high speed.

Similar to algorithmic trading, mentioned in the paragraph above, this strategy is often used by investors who execute large numbers of trades in seconds.
Technology has helped humans in various ways, and trading has not been an exception.

9. Arbitrage Trading

We have discussed many strategies. Now, it is time to mention arbitrage trading which bears the lowest risk among all types of trading in stock market. This approach is about taking advantage of differences in prices of similar or different exchanges and markets.

Traders make purchases in one market and then simultaneously sell in another market at a higher price and win the difference between the two prices as risk-free profit.

10. Futures Trading

As the term itself implies, futures trading involves a contract to buy or sell an asset or a stock at a future date usually for a set price. These contracts are based on the future value of the assets and can result in either profit or loss.

This approach is often taken by experienced traders who can predict the price movements and can speculate the future price of the asset. If the price experiences an increase, after traders have bought them, then they will gain profit. Traders can also use leverages for more profit. This comes with higher profit and definitely higher risks.

11. Penny Stock Trading

The last approach on the list of different types of trading in stock market is penny stock trading. In this type, we are not talking millions, but pennies! This approach refers to buying and selling low-priced stocks which are usually from small companies, and are traded on over-the-counter markets.

Penny stock trading contains any stock less than five dollars. Since these stocks are more volatile and less liquid, it is crucial that investors do not take risks and make well-informed decisions after conducting research on the companies’ financial status.

Conclusion

Understanding the types of trading in stock market is necessary for all traders. All types of share trading in stock market can lead to profit and loss. To choose the best approach among the aforementioned types of trading in this market you should adopt a strategy that aligns most with your investment goals, risk taking ability and time commitment.

It might be wise for novice traders to choose the strategies with lower risks such as swing trading and switch to other types of trading in stock market as they get more experienced.

Make sure you will not invest all your money in stock market. Not even the most experienced traders are immune to the risks. For more detailed guides, resources, and expert advice on trading strategies, visit ITB and enhance your trading knowledge.