What are the Different Types of Online Trading Instruments?

Online Trading

Trading for some may be the best way to earn passive or secondary income, whereas for some it may be the only source of income. In India, trading has garnered immense popularity, but unlike the popular belief, trading is not stocks. In this article, we shall discuss some popular types of online trading instruments in India.

Popular Types of Online Trading Instruments in India

Online trading has become a preferred way of investing and making money. With the help of online trading, you can buy or sell various financial trading instruments like stocks, commodities, currencies, etc., anywhere in the world. Let us look at some of the most popular online trading options in the Indian share market which see high trading volumes daily.

Equity stocks

When trading in India, investors and traders mostly deal with equity stocks. They are undoubtedly the most popular online trading instrument in the Indian share market. Once you purchase a stock of a company, you become the shareholder of that company, meaning you now get the part-ownership and equivalent rights.

Both traders and investors engage in trading and investing in equity stock. You can buy low and sell high to earn quick profits or stay invested for capital appreciation. Moreover, stocks may even pay dividends if you hold them for a long time.

Exchange Traded Funds (ETFs)

An exchange-traded fund, commonly known as an ETF is a basket of investments such as equities or bonds which you can buy through a brokerage firm or stock exchange. An ETF can track an index, a bond, a commodity, or any other basket of investments.

For example, in India, there are equity, gold, debt, sectoral, index commodity, infrastructure etc., related ETFs which have gained popularity recently.

Derivatives

Derivatives are online trading instruments that derive value from an underlying asset, index, or rate. The underlying asset can be a stock, commodity, currency, index, etc. A derivative contract allows you to trade a specified asset quantity at a predetermined price at a specific period or expiry date.

Common types of derivatives include futures contracts and options trading. Future contracts allow you to buy or sell a particular asset at a specific date in the future. On the other hand, options trading gives the buyer the right but not the obligation to buy and the seller the right but not the obligation to sell a particular asset in the future.

Forex

Foreign exchange keeps fluctuating; hence, forex traders find an opportunity to earn profits from these fluctuations. For example, forex or currency traders can profit from exchange rate fluctuations between the US dollar and the INR.

The Forex market is highly volatile and considered high-risk. Hence, a good knowledge of the market is essential for trading in currency derivatives.

Mutual Funds

Mutual funds are a pool of money contributed by several people. Investing in mutual funds has numerous benefits like cost-effectiveness, diversification, accessibility, less riskier than stocks, etc. However, this instrument is mostly used as an investment vehicle for the long term rather than a trading instrument.

Wrapping Up

With the ever-evolving trading and investment landscape of the Indian share market, there are many different options for you to trade and invest in. Newer instruments like cryptocurrencies are also being allowed but still need proper regulations.

The online trading instruments mentioned in the article have distinctive features that make them favourable to Indian traders. However, it is crucial to choose trading instruments wisely, depending on your financial situation and risk-bearing ability.

Also Read: Successful G20 Summit brings cheers to Indian stock investors