Intraday trading as the name suggests refers to the trading system where you have to square-off your trade on the same day.Squaring off the trade means that you have to do the buy and sell or sell and buy transaction on the same day before the market close.Intraday Trading is also referred to as Day trading by many traders.
Lets explain Intraday trading with an example.
Suppose that you have bought 100 stocks of ABC limited during the open market hours,then you have to sell the same no. of stocks of ABC limited before market closure.Same is the case if you have sold the stocks,you have to buy the same quantity of the stock you have sold earlier.
In online trading platforms when you are making an intraday transaction,you have to explicitly specify (as shown below) that it is a Intraday transaction while placing the order.However in case of a buy transaction you always have the option to change it to delivery later before the market close.
In most of the online trading platforms positions bought under intraday trading are squared off automatically if not done by you before the market closure.
Why many traders find Intraday Trading attractive
- Brokerage charges for the stocks traded under the day trading segment are very less than Delivery segment.
- High Margin is available for Day trading (eg.If you have Rs.5000 in your account,you will be allowed to do transactions worth multiple times of this value.This ratio varies as per the policy of the Brokerage firms.Some of the brokerage firms even allow upto 10 times margin)
- They do not want to carry their positions overnight as the stock price might be impacted due to some other event and open with a gap up or gap down the next day.
Intraday Trading strategies -
There are various styles of trading followed by the traders for Intraday trading.
- Some traders focus on very short term and exit the position once they reach minimum level of profit.Such traders usually rely on Volume of transactions to make a substantial profit.They carry out multiple buy and sell trades and sometimes exit the position within minutes.
-Some traders rely on the trend for Intraday trading and usually are much more patient and make fewer transactions.
-Few traders resort to Intraday trading only in the case of some major event when a particular stock is supposed to go up or down based on some event.
Difference between buying stocks on Intraday basis and Delivery Basis
- If you have bought 50 stocks of some company on delivery basis, these stocks will be transferred to your Demat Account (usually it takes 2-3 days to complete the transfer) and you can do whatever you want with the stocks.You can keep them for 5 years or sell them the next week.
- In Intraday trading stocks are not actually transferred to your account and you have to square off your position before the market close on same day (sell same no. of stocks)
Intraday Trading for Beginners
Many beginners in the stock market find intraday trading an attractive option and see this as an opportunity to earn some quick buck on a daily basis.
However we have a word of caution for them as intraday trading is not as simple as it sounds.Making profit in intraday trading on a daily basis is not that easy and requires lot of hard work and discipline.What are your views on this – “Whether a newbie in stock market should resort to intraday trading or not”.Drop in a comment to share your views.