Basic stock market investment and Delivery based trading in stock market

Stock market investment is a good and profitable investment proposition if you can make some good and timely investments. The key for profitable stock market investment is choosing the stocks that are most likely to appreciate in the near future. For making this selection you need to have good understanding of the market dynamics and have a strict vigil on the ups and down of the stock market. There are different ways to invest in the stock market. The key is to choose the right method of investing in the stocks depending on your portfolio and your objective and of course your ability to take risk. Here we are presenting a brief overview of different ways of stock market investment so that you can choose the one that fits your requirement.

Delivery based trading – This is the most common way of investing in the stock market. In this method you have to place your buying request through your broker and pay for the current price of the stock. Once your request is executed the stocks that you have bought are deposited to your DP account. In this process you have to pay the full amount of the stock price. Once the stocks are deposited to your account you can then sell the stocks or hold them for as long as you want. The delivery based trading at the cash segment is the simplest way of trading and the risk is comparatively lower. The biggest advantage of delivery based trading is that you do not have any time limit for selling the stocks. But the negative aspect of delivery based trading is that you have to pay for full price of the stock and the brokerage is higher than other forms of investments.

Margin Trading – Margin trading of daily trading is also a popular way of trading in the stocks. In margin trading you can buy a specific stock at a point of time and you have to sell that stocks on that day and within the trading hours otherwise the stocks will be automatically sold at the price on the closing time of the market. In this type of trading you need not pay for the complete price of the stock and in most cases you can buy the stocks by just paying 10% to 15% of the total price of the stocks that you are buying. This gives you chance to invest in more stocks that your portfolio would otherwise permit you to do so. So you are getting more profit by investing comparatively less amount. Another advantage of the margin trading is that you can short sell a stock. That means you can first sell a stock and then buy that stock when you are doing margin trading. So you can make profit by selling a stock at higher price and then buying the stock when the price drops. The brokerage of margin trading is significantly lower than the brokerage of delivery based trading.

Derivative Trading – Derivative trading is a trading method that is different from trading in the cash segment. In derivative trading mainly two derivative instruments are used namely Future and Option. In derivative trading you are basically buying a contract. In derivative trading you have to make the contract for the lot of stocks that are treated as unit and pay for that lot. The volume of number of stocks in lot depends on the current price of the stock. In the future contract you have to sell the lot of stocks on a future date. In option contract you have to sell the lot of the stocks on a stipulated date and at a specific price. In derivative trading as you can short sell the stocks as well. The brokerage of derivative trading is lower than conventional trading or delivery based trading.

These are three different ways to trade in the stock market. You can choose to trade in the stocks in either of the way that you think is perfect according to your investment capacity.