Intraday trading, which is also referred to as Day Trading, involves the purchase and sale of stocks within the same trading day.Share prices keep fluctuating throughout the day, and intraday traders try to draw profits from these price movements by buying and selling shares during the same trading day. Intraday trading refers to buying and selling stocks on the same day before the market closes. If you fail to do so, your broker may square off your position or convert it into a delivery trade. This kind of trading is always beneficial whether a person is an experienced trader or a beginner as the indicators and trends of the market will guide them properly.
How is intraday trading different from regular trading?
Aspect | Intraday trading | Regular trading (Delivery-based) |
Definition | Buying and selling within the same day | Buying and holding for long term |
Objective | Capitalizing on short-term price movements | Long-term growth or dividends |
Position duration | Must be squared off before market close | Can hold shares beyond the same day |
Ownership change | No change in ownership | Ownership changes from seller to buyer |
Settlement | Same-day settlement | Settlement within T+1 day after transaction |
Risk and reward | Higher risk due to market volatility | Less volatile, requires patience |
Tools | Technical analysis, charts, indicators | Fundamental analysis, company research, financial statements |
Basics of intraday trading
Day trading refers to buying and selling stocks on the same day. It is done using online trading platforms. Suppose a person buys stocks for a company. They have to specifically mention ‘intraday’ in the portal of the platform used. This enables the user to buy and sell the same number of stocks of the same company on the same day before the market closes. The purpose is to earn profits through the movement of market indices. Hence, it is also referred to as day trading by many.
The stock market earns you great returns if you are a long-term investor. But even in the short term, they can help you earn profits. For example, a stock opens a trade at Rs. 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you’ve purchased 1,000 stocks in the morning and sold them at Rs. 550, you would have made an incredible profit of Rs. 50,000 – all within a few hours. This is called intraday trading.
Additional read: Stock Market Timings
Intraday trading- features
On online trading platforms, you must specify if an order is specific to intraday trading. In that case, you take a position on the stock and close it within the trading hours on the same day. If you do not close it yourself, the position gets squared off automatically at the market closing price. You don’t get ownership of the stocks you buy and sell in intraday trading. The goal of intraday trade is not to own the stocks; it is to make profits by reaping the benefit of price movements during the day.
Leveraging:Leveraging means borrowing money from your broker to enhance your buying power and amplify the potential investment returns. For example, you can take the benefit of leverage in intraday trading to take a larger exposure while paying a fraction of the open position. There are terms and conditions associated with leveraging that your broker should get you familiar with to tap its benefits.
On online trading platforms, you have to specify if an order is specific to intraday trading.
You take a position on the stock and close it within the trading hours on the same day.
If you do not close it yourself, the position gets squared off automatically at the market closing price.
The goal of intraday trading is not to own stocks; it’s instead to make profits by reaping the benefit of price movements during the day.
Intraday trading indicators
- Moving average: Moving averages are the most common and widely used indicator. It is the line on the stock chart which connects the average closing rates over a given period. If you are considering a more extended period, the moving average will be more well-grounded. Moving averages let you comprehend the underlying movement of price as most of the time price of a stock doesn’t move only in one direction.
- Bollinger bands:Bollinger bands are a bit more advanced than moving averages. It comprises three lines - the moving average, an upper limit, and a lower limit. With all these, you can comprehend the underlying movement of the stocks better than just by moving averages.
- Momentum oscillators: Sometimes stock prices move unrelated to the bullish or bearish market trends.
- Relative strength index (RSI): This gets calculated in the index form, narrowing the RSI score ranging between 0 to 100. The index increases when the price of the stock rises and vice versa.
Additional read: What is Fear and Greed Index
Intraday trading vs delivery trading
Unlike intraday trading, if you buy a share but do not sell it on the same trading day, it is called delivery trading. In delivery trading, the stocks you buy get credited to your Demat. You hold it for as long as you want, for days, months, or years before selling it. Thus, you continue to have ownership of these stocks. In delivery trading, investors consider the long-term price movement of the stocks to book profits rather than their price fluctuations within the day.
Advantages and Disadvantages of Intraday Trading
Here are the advantages and disadvantages of intraday trading that you should be aware of.
Advantages of Intraday Trading
The trader can make profits based on the movement of the market price of the stocks.
The trader can avoid delivery charges.
If the trader doesn’t close the deal, the position gets squared off automatically, if it's set in the trading platform.
Disadvantages of Intraday Trading
The trader will not own the shares he traded for the day.
The trader incurs a loss if the closing rate is not conducive. If the market is unfavorable, he may have to forego profit.
Conclusion
In conclusion, intraday trading offers a unique opportunity for traders to capitalise on short-term price fluctuations within the stock market. Unlike delivery trading, where investors hold onto their shares for longer periods aiming for long-term growth, intraday trading focuses on gaining profits from the daily market movements without actual ownership transfer of the stocks. Although it comes with higher risks due to market volatility, it also offers potential for significant profits within a single trading day. Traders can use tools like moving averages, Bollinger bands, and other technical indicators to make informed decisions. However, they must also be aware of the disadvantages, such as the potential for losses if the market moves against their positions and the lack of ownership in the shares they trade. Ultimately, whether intraday trading is the right approach depends on an individual’s trading goals, risk tolerance, and market expertise.Top of Form
