About Share Trading
Share Trading
Equity
What is Equity Trading?
Equity trading or stock trading is the buying and selling of equities in the market through your registered trading account. To understand what is equity trading, you must first understand the concept of equities. Equities are a share of ownership in a company and these shares are traded freely on the NSE and the BSE for listed companies. There are over 4,700 listed equities in the BSE today. You call them by different words like equity, stock, share, etc, but they mean the same thing.
Process of equity trading
• To start equity trading you need a Demat account and a trading account. The equity trading is executed in the trading account but the shares are held in the Demat account.
• The first step to equity trading is to activate your trading account and ideally, you must activate your online trading so that you can place all orders online themselves.
• When you place a buy order, the first thing the trading system does is to check if the price matches what is offered by sellers. In that case, a trade occurs.
• Your buy order will always be executed at the best available price, even if your price is anything. This ensures that irrespective of your order, only the best available order comes.
• When you place an order in equity trading the prices are dynamic. Stock prices are affected by the activity surrounding them. Normally, it is a question of demand and supply.
• In the case of intraday equity trading, you can close the trade on the same day. Otherwise, it goes into your Demat account and you have to sell from the Demat account.
• Even when you place a sell order, the execution is done at the best available price subject to available buyers at the best price.
Who is Eligible for Equity Trading
Anyone who is over 18 and can provide all the documents for KYC can open a trading account and start equity trading. Remember to fund your trading account as that is mandatory for delivery trading, intraday trading, and F&O trading.
Benefits of Equity
Following are the benefits of the equity market:
• Equity market investments offer more returns during inflation as compared to other forms of assets. This makes it possible for the investors to keep up with the lifestyle without cutting down on any expenses even when the prices of goods are gradually increasing.
• Despite greater risks, investors can generate huge profits from the returns. The returns earned from the equity market are more as compared to a savings account or a fixed deposit.
• Trading in options market can minimize the risks and amplify profits.
• Investors with good knowledge and enough research can earn huge profits in the longer run.
• Investors can generate steady income in the form of dividends. Dividends are paid to shareholders from the profits earned by the company.
Conclusion
Trading on equity may result in uneven earnings, so it impacts the stock options by increasing their recognised cost. When an increase in earnings occurs, it is option holders who are most likely to cash their options. Since the earnings are not fixed, the chances of the holder earning a higher return are greater.
So, it is more likely that managers will use this option more that owners. Using the process, managers have the opportunity to increase the worth of the stock options. A business that is run by a family, on the other hand, has financial security as its high priority, so, it is unlikely that they would go this route.
As the bottom line, we can view trading on equity as a sort of trade-off. A company uses its equity as a way to get more funds in order to purchase new assets, and uses these new assets to pay for its debt.
Derivatives
Derivative contracts are short-term financial instruments that come with a fixed expiry date. The underlying asset can be stocks, commodities, currencies, indices, exchange rates, or even interest rates. Derivative trading involves both buying and selling of these financial contracts in the market.
Types of Derivatives:
Derivative contracts can be classified into two types - futures and options. A futures contract is basically a contract between a buyer and a seller who agree to buy and sell a specific underlying asset at a future date. Similar to futures, options contracts give the buyer and the seller the right to buy and sell the underlying asset at a specific price at a future point in time. However, an options contract does not create an obligation on both parties to buy and sell the underlying asset. Furthermore, an option contract is sub-classified into two types - call option and put option.
Difference between a futures and options contract
There’s a key difference between a futures and an options contract. In the case of options, the buyer or the seller can either choose to exercise their right to buy or sell the underlying asset, or they could let the right lapse upon the expiry of the contract. With a futures contract, both the buyer and the seller are legally obligated to honour the contract upon expiry, and both parties must exercise the contract before expiry.
What is Margin in derivatives trading?
Trading in derivatives requires the trader to deposit a certain percentage of the total outstanding derivative position in the trading account as an assurance that the trader will follow through with the trade. It acts as a factor that reduces the risk exposure of both the stock exchange and the stockbroker – the latter may ask for only a percentage of the margin requirement and pay the rest of the requirement by furnishing a loan to the trader for that trade.
Conclusion :
Derivative trading is a complex yet interesting concept. One of the main advantages of derivatives is that you don’t require any special tools or technologies to start trading in them. By opening a Demat account and a trading account in India, you can get started with buying and selling derivatives. If you’re a beginner and are just starting trading, it is advisable to perform adequate research before venturing into the derivative segment.
Currency Market
The currency market, also called the foreign exchange market (forex market) helps investors take positions on different currencies. Investors around the world use currency futures contract for trades. Currency futures allow investors to buy or sell a currency at a future date, at a previously fixed price.
Basics of Trading in the Currency Market
Before trading in this market, it is necessary for a trader to gather enough information and have a clear understanding of it. However, currency market timing is 24 hours. It comprises two sides. Buy-Side has buyers of foreign currencies and forwards FX contracts. Sell-side consists of primary dealers in money and originators of foreign exchange contracts, such as large corporations.
The currencies are paired and traded, which means one currency is exchanged for another. But a very less number of currency pairs actually influence the market.
The price of each currency changes depending on the economic, political, and financial conditions of the countries. The market is closed from the evening of Friday to the evening of Sunday. Since during trading hours, the important currencies are mainly traded, they are the ones with the highest trading volumes.
Due to the pairing system, if the traders buy one currency, they have to sell another one. They are quoted as pips or percentages in points.
In a live currency market trading is done in lot size which changes as per the currency. Beginners or retailers try to trade in the smallest lot so that in case of loss, it is easily manageable.
What is currency trading?
Currency trading or forex trading is to buy or sell currency in pairs. For example, today the US dollar stands at 78.25 Indian rupees – if you expect the dollar to appreciate against the rupee, you buy more dollars. Conversely, if you expect the dollar to depreciate against the rupee, you will buy rupees. You must always choose a pair of currencies like INR/USD, for example.
What are the types of currency markets?
The five kinds of such markets are – futures, options, spots, forward, and swaps. The exchange rate market, where currencies are traded in real-time, is called the spot market. However, over-the-counter (OTC) forward contracts are the focus of forward markets.
Currency Market Vs Stock Market
In the currency market, currencies are traded but n a stock market, stocks of companies are traded. However, there are some basic differences between them, as follows:
Conclusion. The Currency markets have become the world's most liquid and continuous markets with trillions of dollars being traded daily. Whether trading in the spot market, the futures markets, or the options markets, speculators and hedgers can find an instrument and the leverage that meet their needs.
| # | Currency Market | Stock Market |
|---|---|---|
| 1 | Currency is traded. | Stock is traded. |
| 2 | Factors like inflation and unemployment affect this market. | Factors like the company’s cash flow, profits, and debt level affect this market. |
| 3 | This market is more liquid than the stock market. | The stock market is less liquid than the market forex market. |
| 3 | For the trading purpose, any two currencies are paired and traded. | For trading purposes, the trader takes the stock of any one company. |
| 3 | Trading hours are 24/7, five days a week. | Trading hours are 9:30 am to 4:00 pm, for five days a week. |
Conclusion. The Currency markets have become the world's most liquid and continuous markets with trillions of dollars being traded daily. Whether trading in the spot market, the futures markets, or the options markets, speculators and hedgers can find an instrument and the leverage that meet their needs.
Commodities Trading
What is commodities trading?
Commodity trading is where various commodities and their derivatives products are bought and sold. A commodity is any raw material or primary agricultural product that can be bought or sold, whether wheat, gold, or crude oil, among many others.
Traditional examples of commodities include GOLD, SILVER, COPPER, CRUDE OIL, NATURAL GAS ect.. For investors, commodities can be an important way to diversify their portfolios beyond traditional securities.
How do I start a commodity trade?
Commodity trading in IndiaTo start commodity trading, one needs to open a Demat account with the National Securities Depository Limited (NSDL) or Central Depository Services (India) Limited (CDSL). The Demat account functions as a holding account for all your investments in a 'dematerialised' or electronic state.
What are commodity trading hours ?
The trade timings of commodity exchange from Monday to Friday are IST 9.00 a.m to 11.55 p.m.* (*during US daylight saving period). You can catch all the action about commodity future live during the trade hours.
Types of Commodity Market:
Typically, commodity trading occurs either in derivatives markets or spot markets.
Derivatives markets in India involve two types of commodity derivatives: futures and forwards; these derivatives contracts use the spot market as the underlying asset and give the owner control of the same at a point in the future for a price that is agreed upon in the present. When the contracts expire, the commodity or asset is delivered physically.
How to Trade in Commodities Market
Trading in commodities is slightly different as compared to trading in equities. The ticket size and the value of trades are comparatively higher in the commodities market. Because of this, such trades involve maintaining margin money, mark-to-market settlements and effective delivery.
Before executing a trade, an investor is required to maintain an initial margin in his or her commodity trading account. The initial margin is between 5-10% of the total contract value. Subsequently, the investor may place an order through his broker by intimating the number of lots and the contract value. The investor may also need to provide a maintenance margin to cover for loss in case of any adverse, unexpected price movements. The broker may make a maintenance margin call if required.
At the end of each trading day, the clearing house publishes the settlement price for each commodity. The difference between the settlement price and the purchase price of the contract is settled at the end of each trading i.e., the difference in prices is debited or credited from the investor’s account. This mechanism of daily settlements is referred to as ‘mark-to-market’.
A commodities contract can be terminated in two ways:
The main difference between forwards and futures is that forwards can be customised and traded over the counter, whereas futures are traded on exchanges and are standardised.
Spot markets are also known as “cash markets” or “physical markets” where traders exchange physical commodities, and that too for immediate delivery.
- Delivery of goods OR
- Cash settlements
The actual delivery of goods has significantly reduced in the recent past. Most contracts are terminated by making cash settlements. Cash settlement refers to the difference in the expectation of the buying and the selling parties.
Overall, trading in commodities can be cumbersome for some considering the daily settlements, margin requirements and other technicalities. As an alternative, exchange-traded funds (ETFs) allow investors to venture into the commodities market without having to enter into individual contracts.
Conclusion: "Commodity markets are complex and constantly evolving. This insightful and well-structured study of all the ins and outs of commodity markets is a valuable addition to the literature for understanding how these markets function and their impacts on the global economy. As the war in Ukraine and the COVID-19 pandemic continue to have substantial impacts on commodity prices and supply chains, this incredibly timely study offers analysts and policy makers a firm foundation for making better predictions and developing more effective policy responses."