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What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market , trading is no more a domain dominated by stock pundits. Today, anyone can do trading and earn profit. Intraday trading is an important subset of trading. Let us study it in detail.

Objective of Intraday Trading

The sole objective of intraday trading is to gain instantaneous profit from stock price movements. By way of an online trading platform, you can look to engage in speculation of a particular stock’s price and how it will trend for the day, and if all goes well, make your trading profit for the day. Say, you are speculating that the price of stock X will appreciate, which stood at INR 100 at the start of the day. If your speculation fits, and the price increases to Rs 150 within a couple of hours, you can quickly look to put in a sale for your purchased lot of say, 1,000 stocks, and earn an intraday trading profit of Rs. 50,000.

Comparison with Regular Trading

Simply put, intraday trading refers to trading of financial instruments, usually stock of companies, which gets completed within the same day. Which means that the buying and selling positions get squared off within the same day, which is in stark contrast to how regular trades work. In the latter, you buy a particular stock, and they would continue to remain in your possession until you decide to sell them off after days, months or even years.

Relevance of Margin Trading

To understand the crux of what is intraday trading, you cannot miss on the concept of margin trading. Day trading or intraday trading enables investors to trade on margins, which essentially implies that you can borrow funds from your broker and take trade positions in higher trading lots, even with limited funds in your demat account . While this levered trade could amplify your returns, as you would be able to transact in higher amounts; it could similarly lead to higher losses as well. And all of this, within a day!

Rules Under Margin Trading

While the investors can take advantage of margin trading, there are certain requirements governing the same:

  • As per SEBI, if you wish to trade on margin, you need to maintain 50% of your total investment amount as initial margin and 40% of the market value as their maintenance margin. These amounts are mandated to be paid as cash, so as an investor, you need to be in possession of sufficient cash liquidity.

  • If you fail to maintain these amounts, the governing body of Securities Exchange Board of India (SEBI) will notice this discrepancy and a margin call will be promptly issued. A margin call, essentially, would require you to either put an end to your existing trading position or bring up your capital to the required maintenance margin levels.

Is Day Trading Worth It?

The answer to this would depend on who’s asking this question. The first rule in the intraday trading guide is that you should not get lured into intraday trading if you cannot commit to the market trends. To efficiently charter the day trading waters, the following is needed:

  • Technical Analysis: You should have some exposure to reading the stock market charts. When you speculate the price of a stock, it cannot be a result of simple guesswork. Through technical analysis, you can recognise trade patterns in the market data, and put forward an educated guess to a particular stock’s price movement.

  • Time: If you have a day job which requires you to be committed to your desk for significant hours of the day, intraday trading may not work for you. For someone to effectively read the market, place trades and gain profits – it requires time. Half-baked attention in intraday trading is a big no and may do more harm than good.

  • Technologically Conversant: Considering intraday trades are conducted through online platforms, it is very important that you are technologically conversant. There are provisions of several Artificial Intelligence applications which can support you with timing of placing intraday trades, and if you are technologically progressive, you can make great use of these applications.

Conclusion:

Being a beginner in any domain can be challenging, but if you are someone who’s risk profiling is bending toward the aggressive side, and who can dedicate significant hours from your day toward reading the market trends, intraday trading may be a good fit for you.

 

Disclaimer

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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