There are principally two ways to transact in the stock market. One is to buy shares and hold them for over a long period of time, sometimes for more than a couple of years. This is known as ‘Investment’. The other type of transaction is ‘Stock Trading.’ It refers to buying and selling of stocks in a day. In this article we will learn what is Intraday Trading, what are the benefits and what are the methodologies to used.
What is Intraday Trading?
Buying and selling the stocks on the same day is known as Intraday Trading. Here, the aim is to make quick profits by taking advantage of the constantly changing share prices.
Example of Intraday Trading
Suppose, you log into the online trading platform and place a ‘Buy’ order for 100 shares of HDFC Bank for INR 1,301. Along with the price, you need to specify that this order is for intraday trading. After a couple of hours, the price of the same stock reaches INR 1,310. Hence, you sell it off immediately, earning a profit of INR 900 (INR 1,310-1,301= INR 9 per share * 100 shares) in a couple of hours. Here, brokerage charges and other online trading charges have not been considered. You can use online brokerage calculator to understand the details of the trade / transaction.
Benefits of Intraday Trading
- Possibility of earning profits within the day
- Low investment as intraday trading is generally done on a margin basis, i.e., depositing a certain sum with the brokers as margin and then trading in larger volumes, as permitted against those margins
- Minimal costs as many of the latest online trading platforms charge very low brokerage or zero brokerage
Disadvantages of Intraday Trading
- Possibility of incurring huge losses in just a day if the volumes are large or the price takes an unfavorable swing
- High levels of stress as you would have to monitor the price movements constantly
- No wealth-building opportunities as the shares are not held for more than a day, so you miss out on the capital appreciation happening with the passage of time
📈 Methodology Used
Though there is no foolproof way to predict the market movements, especially in a really short time of a day; there are certain factors to be mindful of while executing intraday trading so as to avoid the possibility of huge losses:
- Devoting appropriate time daily to constantly keep an eye on the changing prices
- Always execute the orders with ‘Stop Loss’. This helps in capping the losses, in case the prices are swinging in the opposite direction than anticipated
- Maintain sufficient margin with the brokers, as required by the law, and always restrict your trading volume within the range supported by the margin.
- Study the strategies such as Moving Average, Relative Strength Index (RSI), Bollinger Bands, etc., and place informed trades, rather than following some random ‘tips’ from the market experts or friends.
- You can convert the intraday trade into a delivery-based trade and take delivery of the stocks for a long tenure if required.
You can also read about Value Investing vs Intraday Trading – The Exact Difference
Want to start trading in the stock market? Here are some more insightful articles on online trading that will give you walk you through the basics of buying & selling shares, the building of strategies in online trading & much more.
Happy Trading 📈