Different Types of Stock Trading

Last Updated on December 6, 2019

The stock market is an integral part of the financial markets. It’s the ‘place’ where investors and savers converge: the intersection of deficit and surplus spending units. Corporations meet exchange listing requirements. They then under-right—through investment banks—authorized stock and roll out initial offers in the primary stock markets.

Others float more shares through splits, stock options, and selling treasury stock that adds to the wealth generation potential for stock traders on secondary stock markets.  For you to participate and immerse meaningful returns in equity (stock/share) investment, you need an efficient trading style.

Different Types of Stock Trading

You can be a fundamental trader, a technical trader, an arbitrage trader, a market timer, a sentimental trader, or a noise trader. Several stock traders earn a living on a short-term basis. You can also make stock trading one of your long term aggregate fixed or variable income streams. While it’s possible to combine two or more trading styles into a hybrid approach, you should have investment objectives and then settle on a type(s) of stock trading. Here are the types of stock trading you should know about:

Intraday Trading

Trading stocks daily is probably one of the essential short-term strategies. It entails buying shares and closing positions before the stock market closes for the day. Typically, intraday stock traders track daily stock momentum and capitalize on price changes by buying low to turn a profit.

Two crucial factors that intraday stock traders must keep in mind are timing the trade and targeting profit margins. So, trading stocks several times a day calls for an inclination to technical signals and the stock’s fundamental information.

The price analysis helps stock traders track a stock’s momentum. But there is a downside to trading the momentum. That’s because intraday stock traders open positions in anticipation of selling high and often end up leveraging their stock accounts.

Every stock acquisition during the working hours of the day at the stock market is a race against the closing bell. It’s a belligerent type of stock trading and requires some level of expertise. For this reason, it may not be newbie-friendly due to a high probability of rapid investment capital loss.

Swing Trading

Swing trading is pretty much self-explanatory. Stock traders who use swing trading reap returns from swings or price fluctuations. Unlike intraday trading, swing traders can hold stock positions overnight and even for more than a day. The standard practice for swing traders is to hold stocks for several days leading up to a maximum of a week.

The aim is to exploit overnight swings caused by stock fundamentals. Or short-term fluctuations accurately predicted to happen over a couple of days through technical analysis. The swings represent volatility, which is a green light for stock trading. You buy when the stock prices drop and sell upon price appreciation.

The issue with swing trading is that brokers tend to be wary of stock positions held after the bourse closes. Any industry or sector information hitting the market will stir up price movements. The opening stock prices at the start of business could be lower than the last traded stock price.

In such a case, the broker is affected and would have no choice but to make a margin call on all affected leverage accounts. As a hedging strategy, brokers adjust leverage margins upwards, which end up affecting you as a swing stock trader. Make sure your prediction of swings is super accurate to offset the additional margins that can take a big chunk of your investment capital.

Quantitative Trading

Quantitative trading entails the identification of stock trading opportunities by performing a series of quantitative analyses. Data such as historical stock price and volume traded act as inputs in a complex statistical model. Computerizing the models makes them easy to use.

The software is tried and tested for efficiency. It has to pass audit checks. If reliable, the model can tackle real-world stock trading scenarios. The model manipulates the data to provide crucial information. Graphical representation such as moving average charts helps to make sense of the data. Quantitative traders can then use those insights to establish their stock investment and portfolios.

Traditionally, quantitative trading was associated with hedge fund dealers and institutional stock investors whose blocks of stocks run into hundreds of millions.

But now individual stock traders can use quantitative trading thanks to affordable budget computers, widespread broadband internet connection, and availability of credible of-the-shelf quantitative trading software. High-frequency (high volume transactions) stock trading and algorithmic (automated trading instructions) stock trading are subsets of quantitative trading.

Different Types of Stock Trading

Positional Trading

If you’re the kind of long-term thinking stock trader, go the positional stock trading way. Positional traders buy and hold stock positions to sell in the long run. Contrary to intraday and swing trading, positional traders completely ignore small price changes. Instead, they steer clear of market timing and await major stock price movements.

Positional traders need to analyze more than just the stock price. The prolonged position period triggers the stock’s reaction to fundamental dynamics. As a positional trader, the company’s growth and profit potential forecast most of your stock trading behavior.

Positional traders can hold stocks for months or even years. The primary investment objective here is to earn income—either from preferred stock and common stock. The income manifests when the company shares its profits (part retained earnings) in the form of dividends.

Stock Trading Orders

The investor education arm of the Securities and Exchange Commission outlines two main types of stock trading orders:

Market Order: it happens when you give your stockbroker instructions to buy or sell a stock at the best going rate in the stock market. Market orders take time to execute. If the market moves fast, the prevailing rate won’t be far off from the stock’s last traded price.

Limit Order: you can ask your stockbroker to place a buy or sell stock limit order. The buy limit order sets a specific limit for the stock buying price (which can be lower than the limit price). A sell limit order unloads your stock at a particular limit price or higher.

All other types of stock trading orders are unique buy or sell strategies that aim to protect your stock holdings. They include:

1. Stop Order or Stop Loss Order

It’s an order to acquire or dispose of stock upon attaining the stop price. At the moment of executing the transaction, the stop order becomes a market order.

2. Stop Limit Order

A Stop limit order emulates both the stop order and the limit order. Stock is bought or sold in line with the specific stop price, and the stop-limit order becomes a limit order.

3. Day Orders

By default, all orders have an expiry period of one trading day. You’ll have to specify a time frame for your stock trading order to the stockbroker.

4. Good Until Cancelled Order

Typically, an order remains active until you cancel it, but the maximum time you can keep an order open at most brokerage firms is 90 days.

5. Immediate or Cancel Order

At times you may need to swiftly establish a stock position when selling or buying an order. You can do that with an immediate or cancel the order so that the order is either executed immediately or canceled.

6. Take Profit Order

When you have an open stock position on an order that’s close to execution, connect it to a take profit order. By doing so, you make sure that the order is closed out at a predetermined profit level.

7. All or None Order

An all or none order directs the stockbroker to buy or sell a stock and execute that transaction only in its entirety or not any other fashion.

8. Fill or Kill Order

It’s a stock trading order that firmly instructs the whole and instant fulfillment of an order. If those conditions aren’t achievable, the entire order is canceled.

Take a long hard look at all these types of stock trading and figure out how you can tie at least one to your investment plan. Should you decide to use a specific stock trading order, liaise with your stock broker to get the fine print of that particular order. That’s because various brokerage firms have different order realization and execution principles.

Using a stock trading combo such as an immediate or cancel the order for your intraday stock trades isn’t a bad idea. Make the most of these stock trading strategies. They’ll serve you in the short run as well as in the unforeseeable future.

Leave a Comment