“Intraday” simply means within one day. Trading –the act of buying and selling- that is done within one day is intraday trading. You buy in the morning, sell in the afternoon; short sell now and buyback after an hour; buy low-sell high. That is what an intraday trading in simple words.
So intraday trading is squaring-off all your trades on the same day. It is also called day trading.
What is Intraday Trading?
It is not a way to earn quick money. It’s just a hype that because price fluctuates a lot within a day, huge profits/loss can be made. Yes, there are a lot of people and institutions who believe in only-intraday-trade. But they know the risk they are taking and have strategies drawn before executing trades. Slightest mistake can wipe out your capital here. You have to follow strict stop loss to earn profit if you are planning to trade in intraday.
Two foremost benefits of intraday trading are low brokerage and more margin available. Brokerage charged when you take the delivery is more than brokerage charged on Day trading. More margin meaning, if you have, say Rs.1000, you can trade in securities worth ‘x’ times your money. If your broker allows you to trade three times your money, then having Rs.1000 only you can execute trade worth Rs.3000. This ‘x’ varies from broker to broker and is different for different securities. Brokerage is also a very important part of you are day trading and it will help you if the brokerage is low. We would advise to read about out cheapest stock broker in India which talk about the brokers with lowest rates in India.
Another advantage is- your trades are not affected by after-market news. Suppose you have bought SENSEX Futures (delivery trade) and by late evening China decides not to import goods from India. By next morning, as the markets open, your Futures will see a drop down.
- Trading limit
- A trader must have enough trading limit or should deposit money into his trading account, as per his trade requirements.
- Take positions
- Once you have the money, know your margin (the value limit how much more can you trade in) and have decided your moves, execute the trade.
- If you have an online trading facility, you get an “intraday” option. This will automatically square-off your open positions by the end of the day.
- Or call the broker. Notify him about your trade, so that even he can remind you back.
- Limit or market order?
The trading plan includes the purchase and sale price, within which the profit is booked. In the market order, trade executes at the available market price. In limit order, you have to set a price. The trade then executes when that price is available in the market. Eg. You set a purchase order at Rs.105 and the stock is trading at Rs.110. when the price comes down to Rs.105, your trade will be executed.
And there is a stop loss – the most important term in intraday trading. So there are there prices that a trader must look into to make his strategy:
- Entry price
- Target price
- Stop loss
Stop loss acts as a safeguard. Stop loss is a limit to trader’s loss. Suppose, a trader buys a security at Rs.50 and has a target price of Rs.55. The price clashes down to Rs.45; straight loss of Rs.5 (*) number of units. Instead, the trade sets a stoploss at Rs.48. Means, as the price starts falling down, the stop loss will be triggered and shares will automatically be sold at Rs.48; a bearable loss of Rs.2.
Rules of the game
Certain rules and tips to make you cautious & help you win the game:
- Do not invest beyond your risk limits.
- There are stocks with high denomination of price and the price difference looks out to be vast. But if they are illiquid i.e. with not much volumes, your trade plan may not work. Use liquid securities only.
- If you try to hold too many fruits in your hand, it will obviously fall. Similarly, trade in a limited number of stocks (3-4), that you can keep an eye on.
- Make use of price limits- purchase/sale price, target price and stop loss.
- When in intraday market, do not put-on the shoes of investors. Think like trader.
- No place for greed and fear.Keep your emotions out. When your target profit is reached, book it. Or on the contrary, if you can visualize losses, don’t panic. Take a sensible move.
- Don’t use “The Secret” philosophy here. Simply, believe the trend and go with it.