The share market operates on a price-time priority mechanism, especially on platforms like the NSE and BSE. This means that your buy or sell orders are matched and executed based on the best available price in the market at that moment.
If you’re buying, your order is matched with the lowest available sell price.
If you’re selling, your order is matched with the highest available buy price.
However, share trading is about more than just prices — volumes play a key role too. Volume refers to the total number of shares traded for a particular stock and can be measured by either the number of shares or the total value traded. Importantly, 1 buy + 1 sell = 1 volume, not two.
How Is Share Trading Done?
Price and Volume-Based Execution
Share trading is conducted through an online system that displays real-time prices and trading volumes. You place an order based on this data. The system automatically attempts to match your order to the best available price and execute it instantly.Trade Completion
Once an order is successfully executed, it becomes a trade. You can be either a buyer or a seller:If you’re buying, you pay for the shares and they are credited to your demat account.
If you’re selling, the shares are debited from your demat account, and the funds are credited to your bank account.
Intraday Trading
Intraday trading involves buying and selling the same shares within the same trading day. You can:Buy in the morning and sell before the market closes, or
Sell in the morning and buy it back later (known as short selling).
Since there is no delivery in intraday trading, the shares don’t move into or out of your demat account. Only profits or losses are reflected in your trading account.
Types of Instruments
In addition to equities (shares), you can also trade:Futures and Options (F&O) – These are derivative contracts that allow you to take leveraged positions or hedge risks. These don’t involve actual ownership and hence don’t affect your demat account.
(Note: Currency and commodity trading are also available but not covered here.)
Trading Timeframes
Share trading can be done with different time horizons:Intraday trading: Positions are squared off the same day.
Short-term trading: Held for a few days to weeks.
Investing: Held for months or years with the intent to build long-term wealth.
What Are the Risks in Share Trading?
Share trading carries inherent risks due to the dynamic nature of markets and numerous influencing factors.
1. Market-Driven Risks
Stock prices are influenced by:
The overall economic environment
Industry performance
Company-specific results
Investor sentiment (e.g., fear, greed, speculation)
These factors make predicting stock movements difficult and introduce risk to your trades.
2. Execution Risks
Human or system errors during order placement can result in losses:
Entering the wrong price or quantity
Selling shares you don’t own, leading to auction penalties
Buying without sufficient funds, resulting in failed trades
Accuracy and attentiveness are crucial in managing execution risk.
3. Volatility Risk
Volatility refers to how drastically stock prices move within a short period.
High volatility can trigger your stop-loss orders prematurely.
It increases unpredictability, making it difficult to stick to a trading plan.
Markets become less stable, increasing the chance of losses.
Conclusion
Understanding share trading is essential for anyone looking to participate in financial markets. While it offers opportunities for profit, it also comes with its share of risks. Being aware of how the system works, the potential pitfalls, and how to manage risk is key to becoming a successful trader or investor.
