There are numerous methods and styles used by traders to trade. The classification of these trading styles can be done using various measures such as the products trading, buying and selling interval and methods/schemes used for trading. According to the products traded, the major trading types include stock trading, options trading, forex trading, commodity trading, futures trading, etc.
Stock trading involves the trading of equities or shares of companies via specific stock markets. Option trading involves trading of options, which is the right to buy or sell a share/contract at precise time periods under specific market levels.
Online forex trading involves the trading of currencies in pairs; that is buying one currency and selling another one according to currency exchange rate changes. Online commodity trading and online futures trading involve the trading of contracts; either for products like crude oil and natural gas or for money investments like bonds and treasury notes.
Based on the time between purchasing and selling of products online trading can be generally divided in to long-term investing and short-term trading. Usually trades with buying and selling gap below one year are called short-term trades and those with buying and selling interval over one year are called long-term investing.
The majority of online traders are short-term traders, trade equities/contracts in relation to short-term changes in value. Long-term traders trade according to company/industry growth rates.
They are generally company/industry specialists, trade in large quantities with long-term goals.
Short-term trading can be divided in to day trading, swing trading and position trading. Day trading is regarded as the most active trading style. In Day trading the buying and selling period does not exceeds one day. Day traders buy and sell stocks/contracts with in seconds, minutes or hours for generally small gains. Day trading avoids overnight risks as the trader holds no stock/option.
Day traders include:
(1) Scalpers – traders who buy and sell large number of contracts/shares with in seconds or minutes for very little per share gain, and
(2) Momentum traders – traders who trade based on the trend patterns with in a day. Online swing trading, like day trading, is an active process. But here the buying and selling period may range from a few hours to 4 days.
Swing traders trade options/contracts in relation to minor variations in price for little more profit than day trading. Swing trading includes overnight risks of holding stocks/contracts. In position trading the buying and selling gap can range any where from a few days to weeks or months. Online position traders trades on long-term trends and company/industry performances.
They have higher risks and higher gain percentage per share to swing traders and day traders. Based on the schemes followed, trading can be divided in to
(1) Brother-in-law style of trading – trading in accordance with the advice from brokers or other traders,
(2) Technical trading style– trading by using advanced systems to find out historical as well as latest trends, (3) Economist style of trading – trading according to the economic predictions,
(4) Scuttlebutt style of trading – trading based on the information extracted from brokers or other sources, (5) Value trading style – trading according to merits of single share/contract not to whole market, and
(6) Conscious style of trading – trading by combining two or more of above styles to finding right opportunity.