What is Intraday Trading


As one can understand from the name itself, Intraday trading refers to the process of buying and selling stocks within the same day before the market concludes. The objective here is not to invest per se, but to trade for quick gains by restraining the stock indices drift. Hence, the differences in the share prices are tracked closely to earn profits from stock trading.

The most essential thing to keep in mind when doing intraday trading is to define the individual orders for intraday trading. If one fails to do so, their broker may square off the position, or convert the trade into delivery.

Day Trading

As stated earlier, intraday trading, also mentioned as ‘day trading’ by many traders is the buying and selling of the stocks on the same day.

Even though it seems easy-breezy, it might be riskier than regular stock market investing. Thus, it is important for traders, particularly beginner traders, to understand the nitty-gritty of such trading procedures to avoid losses.

Now, how does intraday trading operate? Let’s consider that a person buys some stocks of a company. Then first and foremost, they must explicitly mention ‘intraday’ on whatever platform they use for investing. This tells the broker that the user aims to trade the stocks of the same company on the same day before the market concludes.

If a particular stock opens a trade at Rs 400 but jumps to Rs. 440 within a couple of hours. If 1,000 stocks were bought in the morning and sold at Rs 440, a profit of Rs. 40,000 would be made straight away in just a few hours.

So, this is why intraday trading is popular among the masses.

Advantages and disadvantages

The most important advantage of intraday trading is that positions are not affected by the possibility of negative overnight news that can influence the price of securities substantially.

Such news has vital economic and earnings reports as well as broker upgrades and downgrades that happen either before the market opens or after the market closes.

Trading on intraday support allows several other key benefits. One benefit is the capacity to use tight stop-loss orders — the number of raising a stop price to minimize losses from a long position.

Another involves the improved introduction to margin — and hence, higher leverage. Intraday trading also presents traders with more learning possibilities.

However, with every silver lining, there are also storm clouds. Limitations of intraday trading involve inadequate time for a position to see improvements in profit, in some cases any profit at all, and extended commission costs due to trading more frequently which eats away at the profit margins a trader can expect.

Advantages

  • Positions are unconcerned by risk from overnight news or off-hours broker moves.
  • Secure stop-loss orders can guard positions.
  • Regular traders have an admittance to improved leverage.
  • Many trades enhance the hands-on learning experience.

Disadvantage

  • Numerous trades involve increased commission payments.
  • Some assets are off-limits, like mutual funds.
  • There may not be adequate time for a position to realize a profit before it has to be closed out.
  • Losses can rise quickly, particularly if the margin is used to finance purchases.

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How to Pick Stocks for Intraday Trading?

It is necessary to recognise the best intraday stocks while tackling such investments, as it has relatively higher risks.

Choose highly liquid Stocks

Liquidity is a principal focus of intraday stocks, as, without this point, such trade would not be feasible. Equity shares of small and mid-cap companies can be effortlessly purchased and traded, as well as encounter great dryness due to market variations.

The cyclical variations should be observed by analyzing 52-week high and low values, as it gives an accurate idea about whether an individual should think long or short positions while funding.

Volatility

Most useful intraday stocks endure maintaining medium to high volatility in price fluctuations. Usually, any market value variations of more than 3% should be evaded while performing intraday trading. This is due to the likelihood of acquiring a loss is enormous in case of an unfavourable downturn in the stock market in an economy.

Clear correlation

It is perfect to purchase an intraday share having a high correlation with a benchmark index of a reputed stock exchange. Thus, abundant movement in share values can be seen when the index value tends to vary.

Since benchmark indices consist of shares of the highest companies listed in a stock exchange, it can be understood that variations will proceed in an uphill trend, hindering any economic irregularities. Thus, capital recognition through intraday trading will be visible if this rule is followed.

Essential trade volume

Intraday investors can hunt the trade volume index of distinct security to recognise price variations. A higher trade volume index shows either extreme demand or supply, depending upon an underlying company’s achievement. Capital appreciation earnings can be made through both purchase and sale transactions in such cases.

Benefits of Intraday Trading

Accomplishing trading in intraday share has the following benefits:

Quieter risk

Since securities are traded on the same day in intraday trading, the risk of acquiring substantial losses is minimal. However, in the case of standard trading, the principal is kept secured for a significant time. And during that, price changes can be crucial, causing an investor worse off in an event of stock market downturns.

Cheaper commission charges

Stockbrokers impose nominal fees while transacting in intraday trading stocks, as delivery costs of transferring security in the name of an investor are forgiven. Stock transaction tax, trade fees, services tax and many more are all-inclusive in brokerage fees. And such reductions lower the income of an investor.

Usually, brokerage fees on intraday trading stocks are one-tenth of the levied if standard trading happens.

Higher profits

Intraday trading is known to produce huge wealth for investors. This is when accurate investment strategies are used. Capital appreciation in a rising stock market can be done swiftly. In case of poor market circumstances, intraday share traders adopt the method of short selling to earn profits.

Liquidity

Another advantage of intraday trading is that total financial sources spent can be swiftly retrieved at any time. It is not blocked through an asset purchase deal. This preserves the liquidity states of an investor to meet any personal obligations.

Capital profits through market variations

Investors can benefit through intraday trading in both bullish and bearish markets. This is depending upon the investment policy utilised in such situations. Capital appreciation in a bullish market can be done by the buying and sale of securities listed on a stock exchange. In the event of a stock market downturn, benefits can be made through short-selling financial instruments.

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There are many ways that you can learn stock market trading. If you want to know more about anything specific let us know in the comments section so that we can help you out.

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