Equity Trading: What It Is, How It Works?

In this article, we will discuss,

• Meaning of Equity Trading
• How to Start Equity Trading?
• Different Ways of Equity Trading
• Conclusion
• FAQs

Equity is nothing but part ownership in a company. You buy equity in a company, and depending on the type of share you buy, you get a share in the company’s ownership. There are two markets where equity trading takes place. 

The first is the primary market, where a company opens its doors for the first time, inviting the general public to subscribe to its shares. The other is the secondary market, where retail investors start buying and selling those same shares once it is issued to the general public.

Now, let’s take a look at how online stock trading of equity shares takes place.

Meaning of Equity Trading

Equity trading simply means the buying and selling of equity shares from the financial market. With the advent of technology, it has now shifted entirely to a virtual system and replaced our ancient open cry system. The buyers and sellers enter the stock market with their own equity trading strategy and strive to make profits. The buyers quote a price to place a buy order and if it matches the price quoted by any seller, the order is executed. If there are multiple buyers at the same price, the first buyer is given priority and so on. 

How to Start Equity Trading?

The process to enter the equity market is quite simple. You can follow these steps to successfully start trading. 

• Open Your Account

This is your first step to start equity trading. You need to have both a demat account and a trading account for successfully buying and storing your investments. A trading account is to execute your buy and sell order, whereas a demat account is to store the shares in dematerialized form. If you are, however, an intraday trader, you won't need a demat account. 

• Take into Consideration the Stock Price

The price of a stock can be affected due to several reasons. For example, if there are too many buyers of a stock, its demand increases its price. On the other hand, if a company makes an announcement of its promoter selling its share, it is likely going to bring the price of the stocks crashing. Learn to understand how price fluctuations work and what factors can affect them. 

• Analysing the Market

Market analysis includes fundamental analysis and technical analysis of the equity market. The fundamental analysis is to know how strong the foundation of the company is. For example, its values, demand for its products, the reputation of its directors and the reputation of the company overall in the mind of the general public. 

The other is technical analysis. This is the more complicated analysis system where you use chart patterns, formulas, and ratios, and study the financial statements of the company to determine its profitability. It requires experience learning to analyse a company technically. 

• Placing Order

Once you have selected a stock and analysed it thoroughly, it is time to place the order. Based on your analysis, you can determine how many stocks you want to buy. Once you place the order, the algorithmic system determines if this stock is available for purchase. If it is, money will be deducted from your account and the shares will be credited. If it is not, the order will fail. 

Different Ways of Equity Trading

There are different ways an investor approaches the equity market. Depending upon their goals, risk-bearing capacity and understanding of the market and skills, their choices may vary.

• Investing

This is the first approach of most retail investors. They buy a share and let it remain in their demat account. If they are there for the long term, they hold the investment for a couple of years before selling it off. This is one of the safest options because everyday price fluctuations do not affect it as significantly. You can invest in equity shares either by directly buying stocks from the market, through different funds or via the SIP method. 

• Intraday

This is a more complicated and indirect form of equity trading where you don't just buy equity shares, but you start buying or selling their futures and options as well. Intraday traders do not carry their investments to another day. They square off all their positions before the market closes. It requires a lot of diligence, skill, high risk appetite and agile decision-making to successfully make profits with intraday. 

Conclusion

Starting equity trading is a fairly simple process. However, it is equally complicated to actually make profits out of it. It is a technical concept and requires your hard-earned money. Owing to price fluctuations and other factors, you can end up losing money if you are not careful. 

Therefore, it is important to be diligent and leverage the best stock trading platform like the New-gen Smaco trading app for low latency and speed so you don't miss out on opportunities. 

FAQs

• Is fundamental analysis more accurate than technical analysis?

Ans. Both analysis methods are different and cannot be compared. While fundamental analysis is better suited for long-term investors, intraday traders rely on technical analysis for their decision-making. 

• What is stop-loss in equity trading?

Ans. Stop-loss is a trading tool that allows you to determine a price for your investments to avoid losses when you are not available to sell your investments. Once the price of the stock touches this price, the system automatically sells the stock for you. 

• Are stocks and equities the same?

Ans. Most people use the term interchangeably because both of them refer to equities of a company.

Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847