Stock trading is the process of buying and selling shares on the stock market. While it involves a fair bit of technical know-how, there’s also an intuitive, experience-based element that comes with time. For beginners, understanding the stock market basics is the first step toward smart investing. Whether you’re planning to trade online or through a broker, knowing how to navigate the system is crucial.
Here’s a simple breakdown of the essential concepts every beginner should know about stock trading in India.
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What Is a Delivery Trade?
A delivery trade is when you buy or sell shares with the intention of taking or giving delivery of those stocks. If you’re buying for delivery, you must pay the full trade amount by T+1 (Trade Day + 1), ideally before 11 a.m. When you sell shares for delivery, you’ll need to submit a Debit Instruction Slip (DIS) to authorize the transfer of shares from your demat account.
What Is Intraday Trading?
Intraday trading means buying and selling stocks on the same trading day. You can either buy first and sell later, or sell first and buy back before the market closes. These trades are squared off within the day, and there’s no delivery involved—only the profit or loss is reflected in your trading account.
What Is a Stop Loss?
A stop loss is a predefined price level where your trade will automatically be closed to limit potential losses. For a buy trade, it’s set below your purchase price, and for a sell trade, it’s above your selling price. Stop losses act as a risk management tool and are often placed near support or resistance levels to protect your capital.
What Is Margin Trading?
Margin trading allows you to take larger positions with a smaller upfront investment. You pay a margin amount, and the broker funds the rest, enabling you to trade at a leveraged position. However, these trades are typically intraday in nature, and if you don’t close the trade yourself, the broker will automatically square it off 15 minutes before market close.
What Is an Auction in the Stock Market?
If you sell shares for delivery without actually holding them in your demat account, or if you fail to submit the DIS on time, your position may go into auction. In such cases, the exchange buys back the shares in an open auction to fulfill the trade, and any losses from this process are debited from your trading account.
What Is an Order Book?
Your order book shows all your open orders across cash, futures, and options segments. It lists both executed and pending orders and acts as a comprehensive view of your current trading activity.
What Is a Trade Book?
Once an order (fully or partially) gets executed, it moves from the order book to the trade book. The trade book records every successful transaction and is essential for reviewing your trade history and performance.
What Is a Good-Till-Day (GTD) Order?
A GTD order is valid only for the trading day on which it is placed. If the order isn’t executed by market close, it automatically expires. This is useful when you want to limit your exposure beyond a single day.
What Is an Immediate or Cancel (IOC) Order?
An IOC order must be executed instantly. If that’s not possible, the system cancels the order automatically. This type of order is used when speed is more important than quantity or price.
What Are Market Orders and Limit Orders?
A market order executes immediately at the best available market price, ideal when you want to ensure execution.
A limit order, on the other hand, allows you to set the maximum or minimum price you’re willing to trade at. The system will only execute the order at that price or better.
What Is Mark-to-Market (MTM) Margin?
When you trade in futures and options, you initially pay a margin. However, if the market moves against your position, you’ll be required to pay an MTM margin—an additional amount that covers your unrealized losses based on daily settlement prices.
Final Thoughts
Stock trading might seem complex at first, but once you understand these core concepts, you’ll be in a much better position to make informed decisions. Whether you’re interested in delivery trades, intraday strategies, or margin-based positions, mastering the basics is key to building a successful trading journey.
