Share market and trading are two fairly different terms but related concepts too. The share market essentially is a marketplace where one can sell and buy plenty of securities like stocks, bonds, commodities, etc.
It is the marketplace through which companies get themselves listed so that investors can buy their shares. Share market allows for price discovery as the sellers and buyers negotiate terms with each other for fixing stock prices based on demand and supply.
This market, on the other hand, is referred to as a share market where trading takes place. Securities in this market are bought and sold, and traders trade at short time frames with an intention to make a profit from movement in prices.
Now, one can categorize these traders as intraday traders and delivery traders, who differ on the basis of time frame: buying and selling within the same day and holding shares for a more extended time.
What is the Share Market?
Share markets are the place where any public listed company’s shares can be sold or purchased. When a company goes public, it floats its shares by an IPO, and those shares start floating in the share market so that everyone can get them in the share market. There are two types of share markets available.
1. Primary Market: These are shares that are initially offered. Investors buy shares directly from the issuing company as part of an Initial Public Offering.
2. Secondary Market: The shares are traded between investors after the IPO on the secondary market. This is where most trading takes place because buyers and sellers trade already issued shares.
Share market is, therefore, an important part of the economy because it enables companies to raise funds and allows investors to become a part of business growth. Now that we know what is share market, let’s move on to understanding trading.
What Do You Mean By Trading?
Trading, purchasing, and selling securities, like stocks or commodities should be done to secure a reasonable return on investment. The trading duration varies from few minutes or even seconds for day traders’ positions to periods of many years by long-term investors.
There are several ways that traders can make their way through the trading process:
1. Intraday Trading
In intraday trading, opening and closing of a position occurs during the same trading day. He is keen on fast price movements and closes his trades by the end of the day avoiding the overnight risk.
2. Swing Trading
Here, the swing trader holds a position for some days or weeks with an objective of getting the medium-term price swings. It is much more patient and technically oriented.
3. Delivery Trading
In delivery trading, investors buy shares and hold them for the long-term. Unlike intraday trading, the positions have to be closed by the same end but delivery traders possess the shares, and they can hold it for as long as they want.
Trading vs Share Market
The share market and trading are quite different as the share market is a platform, while trading refers to an activity that takes place within such a platform. Let us look at them in closer detail:
1. Nature
The share market is a marketplace where there are listings and trading of securities. However, trading refers to the buying and selling actions that occur within this market.
2. Time Horizon
Share markets emerge as long-term platforms that bring companies and investors together. Trading, particularly intraday, is short-term and seeks to cash in on price movement within the short time windows.
3. Participants
The share market has several participants ranging from the retail investor to the institutional investor and the mutual funds who play a tug-of-war to buy or sell equities. The trader focuses solely on timing in the market for instant benefits.
4. Risk and Approach
Trading usually entails much more risk because of markets’ volatility, mainly in the short term as with intraday trading. A long-term investment in shares will generally be less risky since the money is tied up, relying on the company’s growth over time.
Why Know the Difference
It is quite essential for a beginner investor to distinguish between trading and share market. Different tasks require different skill sets and varied risk tolerances. For example, long-term investors who trade in delivery look for fundamental analysis and growth of a company. On the other hand, traders mostly depend on technical analysis, charts, and market trends for quick decisions.
Conclusion
Thus, in a nutshell, the share market is a platform in which various financial instruments are bought and sold, and trading is what gets carried out within that platform.
Knowing the difference between trading and share market helps you make great investment choices.
Whether you are interested in what is share market or go deep into the nuanced differences of trading, playing by your strategy which would later aid your financial goals will help make much better decisions and succeed in the long run.