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             08 August, 2022

Category:  Articles » Finances » Investing


Positives and Negatives of Stock cash trading

         Views: 1865
2012-06-30 02:30:53     
Article by Nishi Vyas

Before knowing about anything it is important to have knowledge about the basics of that topic and in stock market its matters a lot. So before illumination of important strategy about stock cash trading we will discuss that what is stock cash trading?

Cash trading is a term used to describe a speculator that only trades with a cash on hand and does not use any margin. Stock Cash trading is an investment strategy that calls for the investor to make purchases of securities on a cash basis only. This is different from the process of trading on margin, where the investor makes use of a line of credit extended through a broker

There are different ways in which you can do stock market trading. The cash trading is one such method. Cash trading or equity segment trading is the most common form of share trading that is done at the stock market and major portion of the stock investors prefer to do stock trading simply because of the simple ways in which the trading can be done. The cash trading is also referred as the delivery based trading as the stocks in this type of trading are deposited to the DP account of the investor.

What you need to do cash trading – Like any other form of trading for cash trading as well you need to have a DP account through which you can do the cash trading. You should also have a broker through whom the trading requests are settled at the stock exchange. That means you need an authorized broker to buy and sell the stocks in cash segment. If you are doing online trading you need to sign a contract with an online broking company who will provide you with a trading account and act as your broker. You can place your buy and sell request through the online trading account and the settlement will be done by the service provider.

How to do the cash trading – For stock cash trading you have to select the stocks that you need to buy and then place the request for the buy through your agent or broker. You have to pay as per the current bid cost of the stock. In cash trading you have to pay the full price of the stocks along with the brokerage and the taxation for the deal while purchasing the stocks. Once your purchase request is settled at the stock exchange through your broker the stocks are deposited to your DP account and the settlement is done. You are then free to hold the stocks or sell them according to your preference. For selling the stocks in cash trading you have to place the sell request for the stocks that you have in your DP account and you wish to sell. Once the request for sell is processed the sell price excluding the brokerage charge and taxes are deposited to your account and the shares are subtracted from your DP account.

Positives or Benefit of cash trading –
The biggest advantage of stock cash trading is that there is no set time limit for buying and selling the stocks unlike the margin trading and derivative trading. So when you are trading in cash segment you can hold the stocks for as much time as you want until you get the desired profit. So in cash trading your chance of getting profit from trading is more than other ways of trading in the stock market.

In cash trading you have to pay the full price of the stocks that you are buying, though it may seem impractical at times, but it surely restrains one investor from going beyond the limit. As you can not invest more than what your fund permits you can control the loss effectively even if the prices get down.

Another benefit is the trader will be able to sleep peacefully at night, since odds are in your favor that you will only lose what you have put up.

Lastly stock cash trading creates discipline methods for investing. For to often traders get ahead of themselves and become more concerned about making fast cash, than learning sound trading principles.

Negatives of cash trading – The biggest disadvantage or you can say negatives of cash trading is of course the excited brokerage charge and taxes that you have to pay for delivery trading. Mostly the brokerage for the stock cash trading is 10 times higher than margin trading. But of course you can reduce this brokerage rate by opting for the online stock trading portals where the brokerage rate is significantly lower than the traditional broking houses but then they are still higher than the margin trading brokerage.

But still cash trading is the most bother free way of trading in stock market that requires hardly any skill for trading and have no complications at all. Therefore, for those traders who are new to the stock market investment and have little knowledge of the trading procedures at the market, cash trading is the one of the less risky and most suitable way of trading for them.

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