What is Intraday Trading?

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What is Intraday Trading?

Many individuals and business entities trade in the share market. One of the most common trading practices is intraday trading. This practice can be profitable but it requires skill, experience and a good understanding of market trends. 

If you’re curious about what intraday trading is and want to have a basic understanding about its types, advantages, etc., then this blog post will certainly help you. 

Intraday Trading Explained

Intraday trading, sometimes called day trading, refers to stock transactions taking place on the same day. In other words, intraday trading refers to a trading practice wherein stocks are purchased and sold within the same day. 

You are considered an intraday trader only if you book gains/losses within the same trading session, and not when you park your money for an extended time period. 

When we talk about day trading, compounding returns over a few years is not a viable option. An acute understanding of the market's potential behavior is essential for this kind of trading, as is the capacity to move fast and turn a profit in a matter of minutes or hours.

Monitoring daily stock volume, market movements throughout the day, and numerous other factors are essential for successful intraday trading. 

How Do Intraday Trading Vs Delivery Trading Differ?

Between intraday trading and delivery trading, the main difference is the length of time the trader holds onto their shares. In intraday trading, a trader squares off their position within the same day. Thus, their sell order offsets their buy order. As a result, there is no transfer of ownership of shares. 

In delivery trading, shares are bought and held in demat account for a longer period, rather than being sold within the same trading day. In this kind of trading, there is a transfer of ownership of shares unlike intraday trading.

Who Should Engage In Intraday Trading?

Intraday trading isn’t for everyone since it involves a lot of risk. Let’s find out who should ideally participate in intraday trading:

• Individual Fearing Overnight Risks: If an individual fears overnight market risks such as big price changes the next day, they might want to opt intraday trading.

• Keen Market Observer: An individual who has enough time to watch the market carefully throughout the day can go for intraday trading.

• Risk-Taker: Only an individual who is willing to take risks can go for intraday trading since it’s a high risk trading method.

• Decisive Individual: The share market fluctuates a lot during the day. Hence, an individual who can make quick decisions must ideally choose to do intraday trading.

Various Types Of Intraday Trading Strategies

There’s not one but many types of intraday trading strategies. If you want to do intraday trading properly, then you should have a deep understanding of the following strategies:

News Trading

News Trading is an intraday trading strategy which involves taking advantage of price movements resulting from news announcements. 

A lot of intraday traders keep a close eye on economic data, earnings reports, and press releases, and they make trades in response to these’ announcements' influence on the market. 

Range Trading

It is a trading strategy wherein stocks are bought when they are oversold and sold when they are overbought. This strategy is used when a stock’s price fluctuates within a specific range, or when the market moves consistently between two prices for a time period. 

To identify the range-bound price movements, the traders depend on technical indicators like resistance and support levels.

Scalping

It refers to a high-frequency trading strategy wherein traders generally hold positions for very short periods, often just a few seconds to a few minutes. 

They rely on small price fluctuations to gain profits.

Momentum Trading

In this trading strategy, the traders buy stocks that are trending upwards and sell them when the trends seem to be slowing down. 

The aim of this strategy is to gain from short-term price fluctuations by capitalizing on the continuation of recent trends.

How To Initiate Intraday Trading?

If you’ve decided you want to give intraday trading a try, you must open a trading and demat account. If you are an existing investor in the stock market, you should consider opening a separate account for the purpose of intraday trading.

For help with intraday trading, various tools are available on the internet. They can also help in managing your taxes as intraday trades are treated differently from delivery trading as per the Income Tax Act. 

Once you’ve opened an account and have the requisite tools, you can start checking out daily charts to identify trends in price movements. These charts are easily available on the trading app on which you’ve opened your trading account. 

To read the daily charts easily, you can avail support of technical analysis tools which are in-built in many trading apps itself. 

Best Intraday Trading Apps In India

Here are the top 10 intraday trading apps in India:

Advantages Of Intraday Trading

Intraday trading offers several benefits for traders. Some of these benefits are as follows:

• Intraday trading may or may not have lower risk, depending on how you perceive it. It can be said it has a lower risk since securities are purchased and sold on the same day. Thus, risk of incurring substantial losses is reduced. But when it comes to delivery trading, where the principal is locked in for a few days or even a long term, price fluctuations can be substantial, which puts an investor at a risk during stock market downturns.  

• The fee charged by stockbrokers for intraday trading is minimal. Some stockbrokers charge as less as Rs. 20 per intraday trade. 

• As long as accurate trading strategy is adopted, intraday trading typically yields massive wealth creation for traders. In a rising stock market, capital appreciation can be achieved easily. Even in adverse market conditions, the short selling method can be used by intraday traders to generate profit.

• Recovery of total financial resources invested is quick with intraday trading. This allows traders to preserve their liquidity requirements whenever they need it for personal reasons related to health, business, education, marriage, etc.

• Intraday traders can not only generate profit from a bullish market but also from a bearish market based on the intraday strategy adopted in such situations. Buying and selling shares listed on a stock exchange might result in capital appreciation in a bullish market. Profits can be made by short-selling financial instruments when the market turns bearish. 

Final Words

Intraday trading isn’t for those who are faint-hearted. It is a high-stakes trading that demands quick-decision making, deep market market knowledge and the ability to handle high pressure. Also, it is not everyone’s cup of tea because the volatility and risks involved can be overwhelming for many traders. Success in intraday trading requires discipline, a solid strategy and emotional strength to manage losses and avoid impulsive moves. It is a trading practice for those who are ready to commit, learn and adapt.

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Frequently Asked Questions (FAQs)

Q1. Who is an intraday trader?

A. An intraday trader is an individual who purchases securities and then sells them within the same trading session to make gains or losses. 

Q2. Who is known as the father of day trading?

A. Jesse Livermore is considered the father of day trading a.k.a intraday trading. He was an American stock trader who lived from 1877 to 1940.

Q3. Is intraday trading a tax-free trade?

A. No, it is not a tax-free trade. It is subject to short-term capital gains tax. 

Q4. Who regulates intraday trading in India?

A. The Securities and Exchange Board of India (SEBI) regulates intraday trading in India.

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