Example
An investor holds 5000 shares of ABC Limited at Rs. 10 per share. Later he sees the share prices showing an upward momentum, so he decides to sell 2000 shares at Rs. 20 per share on the first day and then sell the remaining 3000on the next day as price rises to Rs. 25 per share.
Profit/ Loss Calculation:
={[2000*20]+[3000*25]-[5000*10]
=[40000+75000]-50000
=115000-50000
=65000 (Profit)
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 IPO or buy Mutual Funds.
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.