Stock Trading and Commodity Trading

Stock Trading

The process of buying or selling of shares on a stock exchange, where investors are represented by the stock brokers is known as Stock Trading. A company that is floating its stocks is called a public company. It is listed on a stock exchange. Stock trading can be done either physically or virtually (i.e. online).

Stock Trading: Approaches

There are 2 main approaches to stock trading:

• Active approach: It is a more common of approach. While deciding which stocks to buy, the process involves analyzing the company, reviewing the historical share price trends as well as understanding the current forecasts. Active investors are led by the growth and intrinsic value of stocks. This approach is more often applied by the investment managers who manage mutual funds, pension funds as well as the separately managed individual accounts.
• Passive approach: This approach is opted for by those investors who prefer low-risk, high-yielding stocks and invest their money in them mainly for their retirement needs. This approach takes into consideration the efficiency of markets in the longer term. But it is not synonymous with the strategy of 'buy-and-hold.' On the other hand, it implies buying at low prices and selling the stocks when the stocks have reached a higher price level.

Benefits of Stock Trading

• Buying and selling stocks provides better returns as compared to other financial instruments.
• Stock trading can be done either on a full time or part time basis.
• Online stock trading can also be used as a source of income from home for housewives, the elderly as well as the physically challenged.
• Stock trading also offers scope for diversification across various companies, geographies and sectors.

Disadvantages of Stock Trading

• Leverage in stock trading is much lower as compared to that in forex trading or futures trading.
• Traders may have to wait for a long time for the stock prices to rise.