Equity market is a vast field in terms of value and products. We have cash segment, derivative segment having futures and options, ETF, Equity Linked Mutual Fund Schemes. Various products are designed in such a way so that it the investor or a trader’s needs are full filled. There are lot of different kind of people who react to different kind of situations whether it is good or bad.
There are basically 2 types of investors in the market:
Active traders are normally traders who are buying and selling stocks actively in the market. Some investors buy and sell on “news” or we call it as “tips”. They would survive on this until their fortunes are on their side. Other traders analyse the stocks in a detailed manner considering financials, understanding markets and economic analysis.
Active Traders trade for a sole purpose to make profits in short term. They buy at a low price and sell at higher price in cash segment. They are not keen on holding position for a prolonged period.
These traders are again divided into three parts based on time:
Active traders are usually tagged as “Intraday traders” since the trader books profit or loss on the same day. The purpose of Intraday trading is to get monetary benefit out of price fluctuations. They are more reliant on Technical Analysis then on Fundamental analysis.These traders are more often trade multiple times in a day to book huge profits. Technically, they don’t stay in a position as they sell out the investment.
“Positional Traders” are also active participants of the market but differ based on holding positions in the stock. They are normally hold a position for minimum 3 to maximum 7 days.
This case happens in 2 circumstances
When a person is holding a stock, but is in loss and doesn’t want to book a loss thinking that the price will move up, then he will sell off the stock and book profits.
When a person is holding a position and he is earning good amount but is bullish i.e. the price will move upwards, then only will he square off his position or sell the existing stocks.
An active trader can be an intraday trader or positional trader depending on the market conditions
There is one category of person who comes under Active Investors, they are “Medium Term Traders”, as they hold their stocks from 3 months to 6 months. They are considered safe investors who don’t want to risk themselves from price fluctuations in the market. Their risk is at moderate levels.
Passive Traders are very defensive kind of investors who do not actively participate in the market. their main motive is to earn high returns in long run. They analyse, study the financials, validates the valuation part and then takes investment decision on which stock to buy. There is not much involvement required for a passive trader as once he has invested.
Some of the critical things which an investor should keep in mind is:
Choosing the right stock at the right time is must, which would deliver good returns.
Keeping a diversified portfolio so that the risk gets balanced. Hedging in derivative segment would be an option for minimising the risk profile.
Passive investors get the best bets when they apply this strategy when employed properly.