Once you have decided to invest in the market, it is also important to zero down on the types of stock trading.
Often the extent of gains that you amass from the markets depends on this key factor.
Different types of stock trading are relevant for different kinds of stocks.
It also depends a lot on the overall profit outlook that you may have.
Most times, investors typically undertake just a few types of stock trade.
They are often not aware of the various other opportunities available.
But the different types of trading have their own unique advantages.
Per se, you cannot decide between two types of trading and identify what’s better.
Each trader will have their own pre-determined trading objective.
Most times, they choose a variant that they can choose maximum gains from.
So when you enter the market, you will have to do a bit of introspection too.
That will help you understand your market psychology in a detailed manner.
The type of trade is essentially a confirmation of a specific approach towards the market.
In many ways, this is one of the primary considerations when you begin investing in the market.
In many ways, this helps you grasp the mystique of the stock market too.
The different types of stock trades explore the latent opportunity therein.
It totally depends on your independent expectation from the stock market.
The challenge is many times; investors do not have that much time to invest in the market nitty-gritty.
That is why we decided to create this ready list of different types of trading.
You can look at the different variants and match it with your trading expectations
That will help you maximize the profit potential and extract better value from your stock investment.
Types of Stock Trading
Here is the different types of stock trading:
- Short-term Trading
- Market Order
- Intra-day Trading
- High-Frequency Trading
- Swing Trading
- Positional Trading
- Long-term Trading
- Quantitative Trading
- Arbitrage Trading
1. Short-term Trading
The moment you are exploring different types of stock trading options, the duration plays a crucial role.
Different kinds of trading cater to the different time period.
Often your return expectation is also tempered by the difference in time.
So there are certain types of trading that work very well for the immediate future.
There are others that will not yield appropriate results in the same period.
Short-term trading is more popular among trading veterans.
Here the duration of trade may be a day or at most a few weeks.
Veterans use it as they have acquired a certain degree of comfort.
They can also anticipate market movements a lot faster.
In comparison, the short-term trading alternatives may not be appropriate for new traders.
It can often lead to extreme uncertainty and deep losses for them.
A trader’s mindset and ultimate objective are crucial in this context.
That will help in yielding maximum possible gains.
So, when you are choosing a specific type of stock trading, don’t adjust your return expectation.
It is imperative that you adjust the time duration as per your trading objectives.
A typical short-term trade is initiated with a sell position, and the position is covered by buying.
2. Market Order
This is perhaps the simplest types of stock trading that are practiced.
It is all about selecting a stock, telling your broker to buy it at a current rate.
Here there is no analysis involved and the stock is simply bought at face value.
Invariably this form of trading also involves the lowest commission amount.
The ease of execution is also much higher here.
There is no set time limit in this case.
A buyer may buy the stock for a few days, or it can extend for months too.
The basic profit potential is the only consideration in this case.
The overall idea is to get a certain amount of profit that covers the commission cost and also the cost of holding the stock.
The time duration is extremely flexible and completely at the buyer’s discretion.
The resultant risk is also much lower in this type of stock trading.
3. Intra-day Trading
When you consider short-term options, this is one of the most common types of stock trading.
As the name indicates, the trading is initiated and closed in the span of a single trading day.
The investor does not carry a position home.
They square off all open positions before the closing bell strikes.
The philosophy behind intra-day trading is rather simple.
In this case, traders consider it risky to keep positions open overnight.
They do not know the kind of events that may unfold overnight.
So, all the existing market positions are squared off within trading hours
This type of stock trading is ideal for those who do not care too much about stock fundamentals.
All that they are worried about is their profit margins and timing the trade.
They take advantage of the stock momentum and clock profit on the basis of that.
While trading the momentum guarantees higher returns, it also means you are leveraged more.
So it is surely a very aggressive kind of stock trading.
Technical analysts and experts in stock trading undertake this type of trade more often.
Consistency is crucial in stock trading.
That alone can guarantee a reasonable rate of returns for investors.
Moreover, the returns are compounded on a monthly or quarterly basis.
Here again, consistency plays a crucial role.
That alone ensures that you get the return that can justify the risk that you are taking.
So that means intra-day trading is purely for investors who can dedicate a reasonable amount of time.
They have to track the markets very closely, and the overall return is closely linked to that.
Every tick movement in the market can change the profit outlook to a large extent.
So, every additional minute you spend on the market can enhance profit.
4. High-Frequency Trading
Even within the construct of intra-day trading, there are different types of stock trading options.
One very common type is referred to as speed trading or high-frequency trading.
In this case, the trick is all about manipulating the bid and ask price at a great speed.
Speed is the cardinal factor in this kind of trade.
So the smallest profit in every trade compounds into a huge amount in an aggregate manner.
Trades are often executed in a matter of microseconds.
You may have hundreds of trades over the entire day.
So you can understand that the inbuilt risk in this trading format is fairly high.
Perhaps that is the reason that you see more of institutions, fund managers and hedge fund owners undertaking these trades.
Not only do they have the power to leverage more but also stomach bigger hits.
Most times trades are completely automated.
Detailed analysis, whether fundamental or technical, holds no value whatsoever.
Speed and specific price points are the only two factors to watch out for.
In this context, it can be considered an absolute no-brainer in many ways.
Beginners or medium-range retail traders must completely avoid this kind of trade.
It isn’t suitable for them at all.
5. Swing Trading
When you are exploring different types of stock trading, this is another popular option.
As the name indicates, this trading is based on the swings or price fluctuation in the market.
Though this is also a short-term trading variant, it is different from intra-day trading.
The fundamental difference is in the time frame that is associated with the trading.
While intra-day trading is wrapped within a trading day, swing trading takes advantage of overnight price swings.
It is primarily based on the short-term price fluctuation that stocks experience overnight.
The trader, in this case, tries to accurately predict the extent of swing or price fluctuation.
The profit margin is directly proportional to the accuracy with which they can predict the swing.
So the duration of these trading positions could range from one day to even as much as a week.
At times, these can even extend for a week together.
However, the only advantage, in this case, is that the leverage is not as high as intra-day trading.
Given the overnight risks, brokers often charge certain additional margins on these trades as well.
However, the overnight swing factor often enables a much higher degree of return potential.
In this context, traders also have to invest time in analyzing the charts carefully.
But if you can analyze these movements carefully, the rewards can be much higher.
In many ways, they can ensure steady returns in a given period.
But if you want to invest in swing trading, you need more capital.
Moreover, for every penny that you invest, the margin risk remains.
You cannot look at investing 100% of your capital at any moment.
You have to always provide for margins and a variety of overnight charges that your position may attract.
So the liabilities may be higher here.
6. Positional Trading
This is another popular type of stock trading over the short-term predominantly.
Again, it may have some similarities with swing and intra-day trading; the broad parameters are different.
For example, it will never consider the short-term swings that form the basis of swing trading.
This type of trading completely ignores the minor price fluctuations.
They are completely focused on a large price movement of the stock.
In fact, that is how they also lock their profit.
As a result, they are never too bothered about timing the market.
If required, they are even ready to lie low for a few days and then take a stance.
There are times when positional traders can even wait for months together in the hope of a larger gain.
This is exactly why these traders work on the basis of some hybrid analysis.
Their trades are not solely dependent on either fundamental analysis or technical.
In most cases, you will notice a happy mix of both these in the trading decision.
The complexity involved in this type of stock trading is never uni-dimensional.
As a result, the analysis too is multi-dimensional in nature.
Just technical trading cannot help you take up stock positions for a longer duration.
If you have to hold stocks for a longer period, you will have to consider the fundamentals as well.
This is because the long-term price movement is a function of technicals and fundamentals united.
The percentage of gain that is expected is also relatively large.
So you can see the trading bent is gradually shifting to a fairly long term from purely short-term.
The premium for the time invested and the safety margins also need to be taken into consideration.
The final return has to account for all these elements for a realistic price assumption.
7. Long-term Trading
This generally refers to stock trading that goes on for months together or many years.
While short-term trading is based more on technical analysis, this incorporates fundamental analysis.
The stock’s fundamentals completely dictate the stock’s trading dynamics.
Short-term market changes do not influence the investment decisions.
Invariably investors take a long-term call on the stock’s prospects.
The company’s growth, in this case, is very closely tied to the individual’s profit.
As the company’s profit grows, so does your profit from the holdings.
Additionally, these types of stocks also have a bonus or a dividend component.
That too enhances the overall profit percentage from the stock.
All in all, investors undertake this type of stock trading for sustained gains.
They are not just taking into consideration how much they are able to gain today or tomorrow.
On the contrary, this kind of stock trading ensures they have steady earning for an extended period.
In that way, this is the main difference from short-term trading.
Your trading prowess alone determines your profit in short-term trading.
But in case of long-term trading, it is linked to the stock’s fundamentals to a large extent.
8. Quantitative Trading
When you are exploring the variety of stock trading, this is one of the most modern variants.
Sometimes, traders confuse this type of trading with automated trading or other algorithm based trading.
But quantitative trading is quite different from those.
In fact, this type of trading relies on quantitative analysis and is based on stock performance.
The quant programs are geared to match historical trends and patterns and create a price point.
So, in many ways, you can say this is a refined type of technical analysis.
But it also considers a few other factors apart from the immediate price points.
It offers investors a plethora of statistics based probabilities.
That helps in identifying a proper and definitive trading calls.
As the method of analysis is more sophisticated, it ensures higher trading efficiency.
Computer programs also ensure a definitive speed in the overall analysis.
However, it is essential to maintain the accuracy of the details.
That alone will make sure that the data that is being analyzed yield the desired results.
But you cannot just depend on this single factor.
You will also need a thorough understanding of the market for the appropriate application.
That alone will ensure meaningful long-term gains.
9. Arbitrage Trading
This is a type of stock trading that has flourished as stock markets world over started integrating.
But it requires very high-speed internet network and resources to analyze stock calls appropriately.
The basis of this trading methodology is deeply based on the difference in price points.
The smallest tick difference can result in huge profits on a large position.
The arbitrage is primarily on the risk involved.
Now, this risk arbitrage can be played out in a variety of form.
Often the structure of it is linked closely to the market and stocks in consideration.
Institutions and other large traders primarily exercise this.
But the risk element and the profit potential are interlinked in this case.
Needless to mention, this form of trading also involves a greater risk potential.
Also, you have to be careful about the independent market dynamics therein.
Conclusion
On the whole, these are some of the basic types of stock trading.
But these are not the only options.
There are many others types of stock trading too.
Often, the different types of trading are dependent on the kind of trade you undertake.
Be it Futures, technical or Options trade; there will be different types of stock trading option for each variant.
The overall idea is to book maximum profit within a given period.
It also incorporates covering expenses like safety margin and other related elements.
The primary objective of this trading methodology is all about creating a strong profit outlook.
One of the best ways to achieve this is exploring the different types of stock trading.
These options add value and help enhance your profit from stock trading.