The share market, a cornerstone of modern economics, offers a myriad of trading options to investors and traders alike. Whether you’re a seasoned investor or a newbie, understanding the different types of trading in the share market is essential for making informed decisions. In this article, we’ll explore the primary types of trading, while also delving into the difference between futures and options. We’ll provide practical insights and simple calculations in INR to offer a clearer understanding.
Different Types of Trading in the Share Market
In the share market, there are various types of trading strategies that investors use to make profits. Each trading type is designed to cater to different risk appetites, timeframes, and market conditions. From day trading, which involves buying and selling within a single day, to swing trading, where trades are held for days or weeks, each method offers unique opportunities. Understanding the types of trading in share market is essential for anyone looking to succeed in the stock market.
 1. Intraday Trading
Intraday trading is the buying and selling of stocks within the same trading day. The primary goal is to capitalize on small price fluctuations in a stock. Traders often use technical analysis tools and charts to make quick decisions.
Example Calculation:
Suppose you buy 100 shares of company XYZ at INR 500 each at 10:00 AM and sell them at INR 510 each by 3:00 PM.
Initial Investment: 100 shares * INR 500 = INR 50,000
Selling Price: 100 shares * INR 510 = INR 51,000
Profit: INR 51,000 – INR 50,000 = INR 1,000
 2. Swing Trading
Swing trading involves holding a stock for several days to weeks. The aim is to profit from expected ‘swings’ or shifts in stock prices. Unlike intraday trading, swing traders use both technical and fundamental analysis to make their decisions.
 3. Positional Trading
Positional Trading means holding stocks for a longer period, ranging from months to years. Here, traders invest based on the underlying potential and growth of a company. This strategy involves less frequent trading and is considered less risky compared to intraday and swing trading.
 4. Scalping
Scalping is a highly active trading strategy where traders aim for numerous small profits over very short periods, often trading within seconds to minutes. Scalpers rely heavily on technical analysis and liquidity of stocks.
 5. Momentum Trading
Momentum trading follows the trend of the market, focusing on stocks that show a substantial upward or downward movement. The idea is to ‘ride the wave’ of momentum to earn profits, often using indicators like Relative Strength Index (RSI).
 6. Futures and Options Trading
Futures and options are derivatives that derive their value from an underlying asset like stocks. Futures contracts are agreements to buy or sell an asset at a future date for a specified price. Options give the buyer the right, but not the obligation, to buy or sell an asset at a set price before a particular date.
Futures vs Options
Futures and options are two popular derivatives used in the financial markets for trading and hedging. Both provide opportunities to profit from price movements without owning the underlying asset, but they operate differently. Futures contracts require buyers and sellers to execute the trade on a specific date, while options give the holder the right, but not the obligation, to buy or sell at a predetermined price. Understanding the difference between futures and options is key to making informed trading decisions.
Futures
A futures contract obligates the buyer to purchase, or the seller to sell, a specified quantity of an asset at a predetermined price on a specific future date.
Key Points:
– Both the buyer and the seller are obligated to fulfill the contract.
– Margin money is required to hold a futures position.
– Gains and losses are realized daily.
Options
An options contract gives the right, but not the obligation, to buy (call option) or sell (put option) an asset at a set price before a certain date.
Key Points:
– The option buyer pays a premium for this right.
– The seller has an obligation, but only if the buyer chooses to exercise the option.
– Provides flexibility but comes with the cost of the premium.
Example Calculation for Differences:
Suppose stock ABC is currently trading at INR 800:
- Futures Contract:
You enter a futures contract to buy 100 shares of ABC at INR 810 in one month.
If after one month, the stock price is INR 830:
Profit = (INR 830 – INR 810) * 100 = INR 2,000
- Options Contract:
You buy a call option for 100 shares of ABC with a strike price of INR 810, paying a premium of INR 10 per share.
Total Premium Paid: INR 10 * 100 = INR 1,000
If the stock price rises to INR 830 before expiration:
Profit = (INR 830 – INR 810) * 100 – INR 1,000 = INR 1,000
Conclusion
The various types of trading in the share market offer different approaches and opportunities for investors to maximize returns. Intraday, swing, positional, scalping, and momentum trading provide distinct strategies depending on the trader’s risk tolerance and time commitment. Additionally, futures and options trading offer powerful ways to hedge and leverage investments but come with their own sets of features and constraints.
 Disclaimer
Investing in the share market involves risks, and it’s imperative that investors weigh all the pros and cons before committing their capital. This article is for educational purposes only and should not be considered a recommendation. Always consult with a financial advisor to understand the nuances of trading in the Indian stock market.
