What is trading?

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The term trading is simply referred to as buying and selling securities to make money on daily price changes.


If you want to trade in the share market, you should have a good grasp of the fundamentals of the meaning of trading. Investing is very much essential these days as savings alone is not adequate to beat inflation and fulfill all our financial goals. There are several investment opportunities available, and you can choose them as per your needs and convenience. It involves vigorous participation in the financial markets in comparison to investing, which primarily works on a buy-and-hold strategy.


This article allows us to study in-depth the meaning of trading, the types of trading, and how it works.

What is the Meaning of Trading?

Trading involves the buying and selling of financial instruments like stocks, bonds, commodities, currencies, and derivatives to make a profit. It can be conducted on various markets, including stock exchanges and over the counter (OTC) markets. Traders leverage price movements to execute trades within short time frames, from seconds to several days. Unlike long-term investing, trading focuses on capitalizing on short-term market fluctuations, requiring a thorough understanding of market dynamics, technical analysis, and risk management.

What Assets and Markets Can You Trade?

Various assets can be traded across multiple markets. These include stocks, which are traded on stock exchanges; bonds, traded in bond markets; commodities like gold, silver, and oil, traded on commodity exchanges; currencies, traded in the forex market; and derivatives like futures and options, traded on derivatives exchanges. Additionally, you can trade mutual funds, ETFs, and much more. Each market has its own set of rules, trading hours, and strategies, offering a range of opportunities to match different trading preferences and risk profiles.

Types of Trading

  • Scalping: Scalping is also known as micro-trading. Basically, it is a subset of intraday trading. It is a trading style that specializes in profiting even with small price changes. It can be done several times in a day. Even though all transactions don’t yield profits and in some, a trader’s gross losses might exceed the gains. Thus, it requires a strong exit strategy for the trader to ensure that he does not incur large losses which can nullify his previous gains. In this case, the holding period of the securities is shorter compared to day trading. This requires market experience, proficiency, awareness of market fluctuations, prompt transactions, and strong mental resolve.
  • Day Trading: This form of trade involves buying and selling stocks in a single day. A trader involved in such trades needs to close the position before the day’s market closure. Day trading requires proficiency in market matters and a good understanding of market volatility. Therefore, day trading is mostly practiced by experienced investors.
  • Swing Trading: This form of trade is used to capitalize on short-term stock patterns. This style is used to earn gains from stock within a few days of purchasing it. In swing trading, investors primarily stick to technical analysis (looking at the charts, patterns, etc.) to anticipate the direction of the market.
  • Momentum Trading : When stock price moves upward for a certain duration of time, they are said to have gained momentum. In momentum trading, the traders attempt to profit from this price move. They take position with the aim to sell when the peak is reached. Here, you might have to wait for a few hours or days to earn the desired profit. Moreover, the idea is to purchase stock in large quantities to earn substantial gains.

How Trade Works?

Share trading is buying and selling of companies listed on the 2 leading stock Exchanges:

  • Bombay Stock Exchange (BSE)
  • National Stock Exchange (NSE)
  • The one who buys the shares gets certain ownership in the company and he is entitled to a certain percentage of stake.

Share market works in the following manner:

  • Through an Initial Public Offering (IPO) a company gets listed in the primary market
  • In the secondary market, the shares get distributed
  • Here, in the secondary market the stocks issued are traded by the investors
  • The registered entities with the stock exchanges i.e., stockbrokers and brokerage firms, offer investors and traders to buy the share at a said price
  • Then, your registered broker passes on your buy order to the exchange, which searches for a sell order for the same.
  • Once both buy and sell orders are matched, then the order is set to be executed.
  • This whole process takes T+2 days meaning your bought shares will get deposited in your Demat account in 2 working days from the day you placed the order.

What is Online Trading?

Online trading can be easily done just by opening a Demat and Trading Account with any SEBI registered broker, which offers online services

Opening an account can be done in a matter of just 10 minutes, all you need are the following documents- PAN card, address proof, AADHAAR card, a mobile number linked to AADHAAR, bank statement, canceled cheque leaf, and photograph.

In online trading , you can place your trade orders or cancel orders at your will and from the comforts of your home. You can also buy shares or invest in an IPO or buy Mutual Funds.

Online Trading vs Offline Trading:


Online Trading

Offline Trading


Accessible from anywhere with internet access

Requires physical presence or phone calls to the broker


Instant order execution and real-time market updates

Slower execution due to manual processes


Generally lower brokerage fees and transaction costs

Higher brokerage fees and additional service charges

Information Access

Immediate access to research, analytics, and market data

Limited access to timely market information


Full control over trading decisions and portfolio management

Relies on the broker for executing trades and managing the portfolio


Advanced encryption and secure trading platforms

Security depends on the broker’s protocols and processes


Wide range of trading tools and customizable platforms

Limited flexibility and fewer trading tools available

What are the Advantages of Trading?

Below are some advantages of trading in the share market-

  • Take advantage of the growing economy : When an economy grows, it also facilitates the growth of corporate earnings, this is because the economic growth creates more job opportunities, resulting in more income and more sales. Thus, an investor investing his/her money in the stock of the business, influenced by economic growth helps it to grow better.
  • Easy process of buying and selling : Buying and selling of shares in the stock market is simple and easy for all investors, all you need is a Demat account which can be opened through a broker, financial planner, or online mode. Opening an account hardly takes 15 minutes to set up and start your investment journey. Once this is done, you can place your buy/sell orders.
  • Flexibility to invest in a smaller amount : A new investor can even start with a small amount by purchasing stocks of small-cap or mid-cap companies but in smaller units.
  • Liquidity : Stocks are known as liquid assets as they can easily be converted into cash at any point in time. When compared to other financial assets.

Trading vs Investing

When it comes to wealth creation, both trading and investing are two important attributes of it. For instance, you and your brother bought an equal amount of seeds and you sold them to someone on the same day because you could earn a profit. On the other hand, your brother sowed the seeds and let them grow for a year till they have new seeds. He sold the lot and continued to sow the new seeds and grow crops. By investing in his seeds, he too made profit however, took a different approach than you did.

  • Identity Proof: PAN Card
  • Address Proof: Either Aadhaar Card, Passport, Driving License, Voter id or last 3 months bank statement
  • Photograph
  • Signature on white paper
  • Bank Details: Any Bank proof (cheque or Passbook) bearing client name, account number & IFSC code
  • Income Proof: Either 6 months bank statement, 3 months’ salary slip, net-worth certificate, Holding Report, ITR Statement or Demat Holding Statement.

Advantages of Opening a Trading Account

Trading Accounts offer manifold benefits to the investors, making the share trading ecosystem more robust and efficient. A few of such advantages are detailed below:

This is the difference between both trading and investing in simple terms.

Let’s study below trading vs investing:

  • Period : In trading, stocks are usually held by the investor for a short period (for a week or a day), whereas investing is an approach that works on the buy and hold principle, and the investor may invest for several years as well.
  • Capital growth : In trading, traders look at the price movements of stocks, and if they notice an increase in price, they sell the stock to book profits. Whereas in investing, it requires a patient approach. Wealth is created by compounding interest over the years.
  • Risk : Both trading and investing imply risks. Trading comparatively involves higher risks as the price might go high or low in a short interval. On the other hand, investing is an art, it takes a while to develop. Therefore, it involves lower risk.

Final Thoughts

Investors need to be cautious while making investment decisions. A basic understanding of the concepts involved with trading and investing will help them lessen their risk and improve gains.

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Frequently Asked Questions

How do I start Trading?

Answer Field

To start trading, open a trading account and a Demat account with a registered broker, complete the KYC process, deposit funds into your account, and begin trading by placing buy or sell orders through the broker’s platform. It's essential to educate yourself on market basics and trading strategies before you start.

What are the ways you can trade?

Answer Field

You can trade through various methods such as intraday trading, delivery trading, futures and options trading, and margin trading. Each method has its own risk and reward profile, requiring different strategies and market knowledge.

How do you make money with options trading?

Answer Field

Money can be made with options trading by buying calls or puts to speculate on price movements, or by selling options to earn premiums. Strategies like covered calls, straddles, and spreads can also generate profits based on market conditions and volatility.

Which trade is profitable?

Answer Field

Profitability in trading depends on market conditions, the trader’s strategy, risk management, and market knowledge. Intraday trading, swing trading, and long-term investing can all be profitable if executed well, but each carries its own risks.

Do day traders make money?

Answer Field

Day traders can make money by capitalizing on short-term price movements within a single trading day. Success requires a deep understanding of market trends, quick decision-making, and effective risk management. However, day trading also involves high risk and potential for significant losses.

How does trading and the stock market work?

Answer Field

Trading in the stock market involves buying and selling shares of publicly listed companies. Prices fluctuate based on supply and demand, company performance, and economic factors. Traders aim to buy low and sell high, using various strategies to profit from market movements. The stock market provides a platform for these transactions, regulated by governing bodies to ensure fair practices.

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