Stock trading can be a complex activity. With thousands of stocks, many types of trading, wide-ranging techniques and tools, and numerous brokers to choose from, you can easily feel overwhelmed when you’re starting out. However, you can make things less confusing by narrowing down your options. One of the first things you need to do as a beginner trader is to determine which types of stock trading are most suitable for you. Below is a list of the most common types of trading in the stock market.

Key Takeaways:

  • What Are the Different Types of Stock Trading?
  • Short-Term Trading
  • Long-Term Trading
  • Market Order
  • Intra-Day Trading
  • High-Frequency Trading
  • Swing Trading
  • Position Trading

What Are the Different Types of Stock Trading?

Every investor is different in terms of financial resources, objectives, abilities, risk tolerance, and lifestyle. Therefore, some types of stock trading that are suitable for one investor may not be a good fit for another. For instance, day trading requires you to invest at least two hours a day, so it may not be the best option if you have a busy schedule. Getting into the right type of trading can have a significant impact on your profitability and risk level. It also allows you to trade your preferred kinds of stocks.

All types of trading in the share market have their advantages and disadvantages, which you should carefully consider before you start trading. Below is a list of the different kinds of stock trading.

Short-Term Trading

When you’re exploring different trading types in the stock market, trade duration should be one of your main considerations. Different types of stock trading cater to different timeframes. Usually, the difference in duration has an effect on your profit expectations. If you’re looking to make money in the immediate future, you should try your hand at short-term trading.

In short-term trading, the trade duration may range from one day to several weeks. This form of trading is popular among seasoned traders as they’re able to anticipate market movements quickly. It can be risky for new traders because it can result in extreme uncertainty. As such, you should spend some time learning about short-term trading, devising sound strategies, and getting into the right mindset before you commit your money. Typically, a short-term trade starts with a sell position, and you have to buy to cover the position.

Long-Term Trading

Long-term trading refers to share trading that continues for months or years. Unlike short-term trading, which is largely based on technical analysis, this type of trading focuses on fundamental analysis. The stocks’ fundamentals completely determine their trading dynamics. If the issuing company becomes more profitable, you’ll also see an increase in your profits. Additionally, long-term stocks have a dividend or bonus component, which increases the overall profit percentage from your stocks.

Generally, the kinds of stock traders who practice long-term trading are those who are looking for sustained gains. If you want to have steady earnings over months or years instead of making quick money within a day or week, this kind of trading is suitable for you. While your trading knowledge and skills determine your profitability in short-term trading, you need to choose stocks with solid fundamentals to succeed in long-term trading.

Market Order

Using a market order is perhaps the best type of stock trading for beginners because of its simplicity and low risk. All you need to do is choose a stock and tell your broker to purchase it at the current rate. The stock is bought at face value, meaning you don’t have to do any analysis. Also, the commission fee for a market order is the lowest among all the types of share trading in the stock market.

Another thing that makes a market order appealing is that it doesn’t require you to conform to a set time limit. After you purchase a stock, you can hold on to it for a few days or months, which is completely at your discretion. As a result, the risk involved in this type of trading is very low. One of the disadvantages of a market order is that it offers limited profit potential

Intra-Day Trading

If you want to make money quickly in the stock market, intra-day trading is one of the best options. As its name suggests, this type of trading starts and closes within a single trading day, meaning that you won’t carry a position home. All open positions are squared off when the closing bell rings.

Many investors choose intra-day trading because they think it’s risky to keep their positions open overnight. This type of stock trading is a good option if you aren’t interested in analyzing stock fundamentals. All you have to do is focus on your profit margins and the timing of your trades. You need to closely observe the stock momentum and make your trading decisions based on it. While momentum trading may bring higher returns, it can increase your risk. Overall, day trading is a very aggressive form of trading.

To become a successful day trader, you have to be an expert in technical analysis. Being consistent is essential in ensuring that you’ll get returns that justify the risks you’re taking. In addition, you need to dedicate a substantial amount of time in order to make money from intra-day trading. It’s important to monitor market movements closely because every tick movement can have a big impact on your profit outlook.

High-Frequency Trading

There are several subtypes within intra-day trading, one of which is high-frequency trading. Also known as speed trading, this kind of trading involves manipulating bid and ask prices at a great speed. Usually, trades are executed in less than one second, so a speed trader may have hundreds of trades over the course of a day. The small profits from the trades may add up to a large amount by the end of the day.

While it’s a potentially lucrative type of trading, high-frequency trading involves substantial risk. As such, you need to practice a lot before you get into speed trading. In most cases, trades are fully automated, so there isn’t a need to perform technical or fundamental analysis. Specific price points and speed are the two main factors affecting your trading results.

Swing Trading

Swing trading is a variant of short-term trading. It differs from day trading in that it takes advantage of price fluctuations that occur overnight. As a swing trader, you have to make accurate predictions of the extent of the price fluctuation. Your profit margin is directly proportionate to the accuracy of your prediction. In swing trading, the duration of your positions may range from one day to as long as a week.

The main advantage of swing trading is that it doesn’t expose you to as much risk as intra-day trading. However, you have to be prepared to pay your broker additional margins on your trades because of the overnight risks. Then again, the overnight swings can significantly increase your return potential. As in day trading, you have to invest enough time to analyze the charts carefully in order to earn higher profits. In many ways, swing trading can give you steady returns within a specific timeframe.

It’s important to note that you need more capital to practice swing trading. Also, you can’t invest all of your capital at the same time, because you need to have some funds available to pay overnight charges and margins.

Position Trading

Position trading is another popular form of stock trading that’s predominantly undertaken over the short term. It’s similar to intra-day and swing trading in some ways, but its broad parameters are different. Unlike swing trading, this type of trading doesn’t take short-term price fluctuations into account. Instead, it’s fully focused on large movements in stock prices. In fact, this is how position traders generate profits.

As a position trader, you don’t have to bother with timing. In some cases, you may even have to lay low for several days before you take a stance. There may also be times when you choose to wait for months in order to make a larger gain. Due to its complexity and unpredictably, position trading often requires some hybrid analysis. In most cases, you can’t solely depend on either technical or fundamental analysis to make sound trading decisions. Besides overcoming a relatively steep learning curve, you also have to be prepared to take considerable risk.

Many investors focus on only one or two types of trading in the stock exchange. As such, they may not be aware of the many other profit opportunities available in the market. While it’s important to find your niche, you should be open to trying other types of trading. Being a flexible trader enables you to easily adapt to changes in the stock market, diversify your investments, and explore more opportunities in different areas. This can help reduce your risk and increase your profit potential. If you want to sharpen your stock trading skills, join our seven-day RagingBull Bootcamp for free.

Jason Bond

Jason taught himself to trade while working as a full-time gym teacher; his trading profits grew eventually allowed him to free himself of over $250,000 in student loans!

Now a multimillionaire and a highly skilled trader and trading coach, Over 30,000 people credit Jason with teaching them how to trade and find profitable trades. Jason specializes in both swing trades and in selling options using spread trades, which balance the risk of selling options. Jason is Co-Founder of and the Foundation which donates trading profits to charity. So far the foundation donated over $600,000 to charity.

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