What is Intraday Trading?

Intraday trading, or day trading, involves buying and selling stocks within the same day, with all positions closed before the market closes.
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What is Intraday Trading?
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3 mins
23-September-2024

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?

Let us explore how an intraday trading is different from a regular trading:

Aspect

Intraday trading

Regular trading (Delivery-based)

Definition

Buying and selling within the same day

Buying and holding for long term

Objective

Capitalising 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

Pro tip

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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.

Benefits of intraday trading

Intraday trading offers several advantages for investors:

  1. Rapid profit potential: Traders can capitalise on short-term price movements, leading to potentially swift gains.
  2. Enhanced liquidity: The market is more liquid during trading hours, facilitating easy entry and exit of positions.
  3. Strategic flexibility: Traders can employ various strategies, such as scalping, momentum trading, or technical analysis.
  4. Reduced overnight risk: By closing positions daily, traders minimise exposure to overnight market events.
  5. Learning opportunities: Intraday trading provides hands-on experience in market dynamics, technical analysis, and risk management.

How to do intraday trading?

Successful intraday trading requires careful stock selection. Here are key considerations:

  1. High liquidity: Ensure stocks can be easily bought and sold, especially for small and mid-cap companies.
  2. Price volatility: Identify stocks with moderate to high volatility for potential profit opportunities. However, excessive volatility can increase risk.
  3. Correlation with benchmark indices: Choose stocks that closely track a reputable index for potential price movement.
  4. Trading volume: Monitor trading volume to identify stocks with high demand or supply, indicating potential price fluctuations.

Intraday trading indicators

Let us discover the different types of intraday trading indicators:

1. 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.

2. 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.

3. Momentum oscillators

Sometimes stock prices move unrelated to the bullish or bearish market trends.

4. 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.

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Frequently asked questions

What is intraday?

Intraday, often referred to as day trading, involves buying and selling stocks or other financial instruments within the same trading day. All positions are closed before the market closes, so no shares are held overnight. The main goal is to capitalise on price fluctuations throughout the day.

Is intraday good for trading?

Intraday trading can be beneficial for traders who are well-versed in market trends and technical analysis. It offers opportunities for quick profits but also involves higher risk due to market volatility. Suitable for those who can dedicate time and have the capacity to manage rapid changes in their investments.

Can I earn 5000 a day in intraday trading?

Earning Rs. 5000 per day in intraday trading is possible but not guaranteed. Success depends on factors like market conditions, investment size, strategy, and the trader's skill level. Risks are significant, and potential losses should always be considered. Consistent profitability requires experience, discipline, and effective risk management.

What are the rules for intraday trading?

Key rules for intraday trading include:

  1. Always set stop-loss orders to minimise potential losses.
  2. Use margin responsibly to leverage positions without overexposure.
  3. Close all positions before the market closes to avoid them being automatically squared off.
  4. Continuously monitor market trends and price movements throughout the day.
  5. Implement a solid trading plan with clear entry and exit strategies.
What is the difference between day trading and intraday trading?

Day trading and Intraday trading are different terms but have the same meaning.

Buying and selling shares on the stock exchange on the same day are known as Intraday trading. As buying and selling happen on the same day, it is also known as day trading.

The prices of shares keep moving up and down during the day, the trader makes a profit from the movement of the share price. The shares do not get stored in the Demat account.

How is intraday trading different from regular trading?

The objective of any form of trading is to make profits. However, there are different types of trading that you use to make profits. With intraday trades, the timeframe is only one day. Whereas, with regular trading, you can hold the shares you have bought for as long as you want.

When you feel that a certain stock price is going to decline you can take a short position on an intraday trade, however, there is no such option with regular trading.

How does intraday trading work?

To perform intraday trading, the trader should select the intraday trading option in the online platform of the respective Depository Participant (DP) or the stockbroker.

In intraday trading, the trader takes a position in the stock market and once the price movements of the specific share price are conducive, he will close the deal. If the position taken during the day is not closed by the trader, it automatically takes the reverse position at the closing market rate. The trader does not own the shares at the end of the day as the intention of the trader is to book profit based on the movement of the price.

How to do intraday trading?

A trader will have to select the Intraday trading option in the online trading platform. It is not available by default as an option but needs to be started by filling out an application form. The brokerage charges for intraday trading are different from delivery-based trading.

In the case of intraday trading, if a trader takes a position in the stock market, he will have to close the deal within the trading hours of the same working day. If the position is not closed by the trader, the stock will automatically get squared off at the closing price.

How do I start intraday for beginners?

If you are completely new to the stock market and have no idea about it, then you should ideally, halt your plans for intraday trading. Intraday trading requires some basic knowledge about the stock market and placing orders, especially the stop-loss order. If you are aware of the basics, then you can create your Demat & Trading A/c with your broker, deposit funds, understand the SEBI guidelines for margin requirements and start trading during market hours. You need to remember that intraday trades are meant to be closed on the same day itself or the position will be squared off automatically.

Is intraday trading profitable for beginners?

Intraday trading is profitable if you can analyze the market trends and patterns and time your entry and exit properly. As there is a considerable risk involved in intraday trades because of market volatility, beginners should understand the importance of a stop-loss order to minimize the losses.

Who should participate in intraday trading?

Anyone good at analyzing market trends and patterns can participate in Intraday Trading. This is popularly known as Technical Analysis. A trader must know how to read and understand various trends through different types of indicators on the price chart.

What is the timing for intraday trading?

The usual market hours for intraday trading are between 9:15 A.M. and 3:15 P.M. Usually, intraday traders do not make a trade right after the market opens as there are slightly more price fluctuations in the first hour or so. A trader will wait for the market to settle and then time their trades according to the indicator they are referring to for signals.

Can I hold intraday shares?

No, you cannot hold intraday shares after the market closing hours. If you haven’t, your broker will automatically square off the position.

How many shares can I buy intraday?

There is no such limit on the number of shares you can buy intraday, however, you need to keep a check on the fact that trading on more than one share at once can be risky and you may not be able to focus on the trends and patterns of one specific share. Only if you are highly skilled in Technical Analysis you should go for more than one trade at once.

How much money can start intraday trading in India?

There is no fixed amount to start intraday trading. You can start with any amount you want. If you are a new trader, then it is recommended to start small. An advantage of trading on Intraday is that all brokers provide leverage, which means you can buy shares worth more than available funds.

How to find stocks for intraday trading?

Intraday traders believe that volume and liquidity are the most important aspects of intraday trading. Usually, intraday traders will choose stocks with high liquidity and high trading volume. Although these are the primary attributes for choosing stocks it is also important to do your due diligence (research, check the news, use technical indicators) before choosing stock for intraday.

What is a stop loss and why is it important in intraday trading?

A stop loss is a sell/ buy order that is placed to close the existing long/ short position on trade. A stop-loss is used to minimize losses during volatile market situations. A stop-loss order acts as damage control in case the market moves in the opposite direction of your position.

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