Explore the simplified world of stock market trading, including cash, futures, options, and commodities. Learn about different trading segments and strategies for risk management.
There are different segments of trading in stock market
1. Cash Segment
2. Future Segment
3. Options Segment
4. Commodity Segment
- Out of above all most popular among the retail traders is trading in ‘Cash Segment’. Here traders take position in particular stock and square it off on same day. This is known as ‘Intraday Trading’. And few traders with higher margin money and trading capital can hold the position for few days to few weeks. This is known as ‘Positional Trading’. While ‘Intraday Trading’ is mainly attempted by small traders the risk of making loss is high. White ‘Positional Trading’ is mainly attempted by bigger traders the risk of making loss is moderately low.
- Trading in ‘future’ is attempted by high risk traders. Here risk is almost unlimited and one trade is enough to wipe out your entire trading capital. Therefore somebody rightly said, “There is no future while trading in future”
- Trading in ‘Options’ is done mainly by most of the traders who are willing to take limited and defined risk. However here the profit is unlimited (on paper only) but risk is limited. These kind of traders are known as ‘Options Buyers’. These kind of options buying is mainly attempted by small and novice traders who have limited knowledge, low risk appetite and small capital. But there are another category of traders who trade in options by selling them. They are popularly known as ‘Options Sellers’. For them profit is limited but risk is unlimited. These kind of option selling is mainly attempted by highly professional traders with sound knowledge, high risk appetite and huge capital. In Options Trading there are lots of options.
- Trading in Commodity is dark sight of trading and widely remain untouched by most of the traders because of its being less informative and unpopular among the traders. Normally trading in commodity is mainly used as a hedge by those involved in particular business like trading in Gold, Silver, Aluminium, Copper, Cotton, Jeera, Crude Oil, Natural gas etc. However there are few traders who do it quite professionally to earn out of it even without taking or having delivery of any of these commodities. Trading in commodity is advised to be done only with sound knowledge of its fundamentals, latest news development and with proper hedging because of its unpredictable and volatile behavior.
Hedge Traders:
Finally there come those traders who use multiple types of trading and do trade with complete hedging only by applying various trading strategies. They are known as ‘Hedged Traders”.
Here the capital required is moderate, Risk is limited, Profit is Limited. This kind of trading is highly advisable to Novice traders and those who have either No or Limited knowledge of market fundamentals and its behavior. However, how to hedge? When to Hedge? What are different strategies to hedge? – These are few burning questions among the traders. Honestly, it require practical experience only because what you learn by reading theories are quite different when you actually start trading in live market.
Trading is all about risk management, position size and discipline. Risk management is related to Stop Loss and Targets. Position sizing is related to your trading capital and margin you use for trading and Discipline is related to control over your emotions & greed and remain strict to you plan & procedure.
“HIGHER THE RISK – HIGHER THE RETURN; REMEMBER – TRADING IN STOCK MARKET IS NOT JUST A GAMBLING, IT’S A PURE BUSINESS.”
Author Bio
The process of buying and selling shares of a specific company is known as trading in the stock market.