Types of Trading

What is Buying Long?

Buying long is the buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value. Generally an investor will go long on an investment if he believes that its price will rise in the future. By going long, the investor can buy more than he can afford by using margin (leverage). If the investor’s belief about the price rise turns out to be correct, he stands to gain more than what he could have without a margin buy. The catch is the longer it takes for the price to rise to the expected price level, the less will be the gain. If the calculations go wrong, it can be risky. If the price falls instead of rising, the investor will start making losses.

What is Selling Short?

Short selling is the selling of a security that the seller doesn't own but that is promised to be delivered. That may sound confusing, but it's actually a simple concept. When an investor short sells a security, his broker will lend it to him from the brokerage's own inventory, from another one of the broker's customers, or from another broker. The securities are sold and the proceeds are credited to the investor’s account. Sooner or later investor must close the short by buying back the same number of securities and returning them to his broker. If the price drops, the investor can buy back the securities at the lower price and make a profit on the difference. If the price of the stock rises, the investor will lose money as he will have to buy it back at the higher price. Investors use short selling mainly to speculate and to hedge. There are many restrictions on short selling – size, price and types of securities.

What is Scalping?

Scalping is a trading style in which a trader takes a profit on the first leg of a movement, not allowing the security any meaningful retreat. A scalper makes dozens or hundreds of trades per day, trying to "scalp" a small profit from each trade. It is a method for the more experienced.

What is Day Trading?

Day trading is the buying and selling of a security within a single trading day such that all positions will usually but not necessarily always be closed before the market close of the trading day. Day trading takes place in stocks, stock options, currencies, and a host of futures contracts such as equity index futures, interest rate futures, and commodity futures. Initially the preserve of financial firms and professional investors and speculators, it has now become increasingly popular among casual traders due to advances in technology, changes in legislation, and the popularity of the Internet. It is highly risky. An investor new to day trading is likely to suffer losses in the first few months of trading. Day trading keeps the markets running efficiently via arbitrage and provides much of the markets' liquidity.

What is Swing Trading?

When an investor holds stock positions for a short duration of time but longer than a day trade, it is called swing trading. It can last anywhere from 2 days to a month. In swing trade, the investor generally tries to take advantage of short and mid-term movements in stock prices by trading the waves up or down.

What is Trend Trading?

Trend trading is a when an investor attempts to capture gains through the analysis of an asset's momentum in a particular direction. The investor will enter into a long position when a stock is trending upward. If the stock is in a down trend, a short position is taken. Trend trading assumes that the present direction of the stock will continue into the future and is used by short, intermediate and long-term investors. Investors will remain in their position until they believe the trend has reversed.

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