Advantages and Disadvantages Of Online Trading

How To Trade Online?

Step 1: Open a Demat and a Trading account by approaching a SEBI-registered broker. You can open an account by submitting a few documents, like PAN, Aadhaar Card, a Canceled Cheque, Six Months Bank Statement, and a Passport Size Photograph.

Step 2: Once the account is open, you need to transfer funds from your bank account to the trading account.

Step 3: Voila! Now you can start online trading.

Types Of Online Trading

We have categorized online trading into 3 types: 

1.  Quick Trades: Scalping and Intraday Trading
2.  Positional Trades
3.  Investing: Share Investing and Mutual Funds Investing

Check out the difference between Futures and Options in the Tabular Form below: 

Quick Trades

Scalping

In scalping, the trades are taken only for several seconds to minutes, this strategy is mainly used in high volatile stocks to make the most of price movements. It is often referred to as micro-trading. Traders involved in scalping execute hundreds of trades in a day. 

Scalping falls in a very high risk category and requires a good amount of experience and expertise in the stock markets. You can do scalping with a small amount of money via leverages.

Intraday trading

As the name suggests, intraday trading is basically buying and selling of shares on the same day. It is also known as day trading. The holding time in intraday trading can vary from a minute to hours. Usually, intraday trading is done based on technical analysis and news or events.

Intraday Trading also falls in a very high risk category and requires some expertise in the stock market. You can do intraday with a small amount of money via leverages.

Positional Trades

Positional Trading

If you hold a stock for more than a day it is known as positional trading. It is based on the idea that the value of the stock will appreciate in several days to months. Here the traders follow a trend and wait for it to peak. 

Positional Trading can further be categorized into swing trading, which is again a trend following strategy but is popularly said to have a holding period of several weeks.

Positional Trading falls in the medium risk category and requires a higher amount of capital as you need to pay the full amount for the shares you buy.

Investing

When you buy shares to hold them for several months or years, it is called investing. Investing can be done in shares or mutual funds. 

While Investing in shares falls in the medium-risk category, mutual funds are considered to be low-risk instruments.