Things That Make You Love And Hate Intraday Trading.

What is intraday trading? How people are making money from intraday trading?

In the stock market two types of investment you can find.

• Long term investment
• Trading

If an investor buys a stock and holds it for months or years it’s considered a long-term investment. Intraday is coming under the area of trading. Intraday is one of the trading methods which is more popular nowadays. Many investors are investing from 1000 to lakhs and making a profit from that.

Previously people had thought that intraday is illegal but the reality is SEBI has control over intraday so it’s not an illegal activity at all.

Topics we are covering in this blog post

• What is intraday trading?
• What is the Specialty of intraday trading?
• Advantages of intraday trading
• Disadvantages of intraday trading
• How we can perform intraday trading
• How to do successful intraday trading

What is intraday trading?

Intraday trading is also known as “day trading”. Intraday trading is buying of stocks and the selling of stocks happens the same day. The process of buying and selling of shares happens between 9.00 Am and 3.30 Pm.

What is the specialty of intraday trading?

When you decided to go with intraday, first you need to login into a brokerage firm’s website or mobile application and login into the account. Now you can see options like Sell or Buy. One thing the investor needs to remember is if an investor buys a stock end of the day investor needs to sell that. If an investor sells a stock at the end of the day investor needs to buy the stock. Both activities are needed to be done in a single day.

In Zerodha brokerage Application if you select the buy option you can see two areas

• Intraday (MIS)
• Long term(CNC)

For intraday trading, you need to select the intraday option. The next step is to add the price there will be two options available 1) Market price 2) limit

Market price means the last traded price,  whatever price is coming as the last trade price, in that price we can buy that shares, in the limit we can set the price of the stock. When the stock price reaches the price we added it automatically buys those shares.

The most important specialty of intraday trading is Leverage.

What is Leverage? How does leverage work intraday?

When you have created an account with any of the brokerage firms. They offer certain x times of money on the capital you have. For example in the case of Zerodha, they offer 5x as leverage. That means if you have 1000rs in your brokerage account, you can purchase stocks worth 5000. This is the reason leverage is considered as one of the specialties of intraday compared to long-term investment. Different brokerage firms offer different leverage to their customers. Using this leverage the investor can purchase more stocks and make more money from them.

Leverage is the specialty of intraday trading compared to long-term investment.

How does Leverage work in intraday trading?

We can consider “Tata steel” as an explanation for the leverage in intraday.

Suppose the stock price of Tata steel is 1000. An investor has 1000rs in a brokerage account, in the case of long-term investment he can buy only 1 quantity of stock.

In intraday trading, investors can utilize the benefit of leverage. In this case, Using the benefit of leverage investor can purchase the stocks of Tata steel worth 5000rs which mean 5 quantity of shares.

If the Price of Tata steel is increased to 1100, in the long-term investment case investor made a profit of 100, but in the case of intraday trading investor made a profit of rs500. In reality, you made an investment of 1000 and made a profit of 500. It is greater than normal trading. This is the major specialty of intraday trading.

In case the price of Tata steel drops the investor will face a loss as well. To avoid huge losses in intraday trading the brokerage firms provide some options like Target and Stop loss.

Target and stop loss.

When we purchase the stocks we can set the price to sell the stocks. Suppose if we purchase a stock at @100 we can set the target price at @150, so it will automatically sell when the price of the stock reaches @ 150.

In the same way, the investor can set a stop loss as well. If an investor purchased a stock @ 100 investors can set the stop loss @90 which means if the price of the stock reaches 90 it will automatically sell the stocks and reduce the loss to the investor. This feature helps the investor to avoid huge losses.

Why do brokerage firms give more leverage?

Suppose an investor has less capital the investor can utilize the leverage to buy more shares and make more profit out of that. Brokerage firms offer huge leverage to attract more investors into intraday trading that’s will help them to make more brokerage money from that.

Recently SEBI has instructed brokerage firms to reduce the leverage amount. A few months back Zerodha offered 9x and now they are giving 5x.

What will happen if you do not sell/buy the stocks on the same day?

If you forgot to sell stocks/ buy stocks on the same day, it will automatically sell/ buy the stocks once the market ends. Those actions will happen at market price. This process is known as the square-off of shares. Investors may face loss or profit from these actions.

 

Advantages of intraday trading.

• Leverage

           This is one of the major advantages of intraday trading. This will allow the investor to purchase more quantity and make more profit out of that.

• Make a profit in any market situation

Investors can make a profit in any market condition. Suppose the market is going up and you can identify these from the trends, then investors can purchase the stocks and sell at higher prices this leads to getting more profit

If the market is going down then investors can sell the stocks and purchase the stocks at a lower price this allows the investor to make a profit. This is known as short selling

In this case, investors can make a profit in both cases this is the specialty of intraday trading.

• Less risk and No overnight tension

Buying and selling stocks on the same day will reduce risks like company performance, company-related issues, etc. so it won’t carry any risk to the next day, it will be higher when you invest in the long term.

• It has more convenience and flexibility

You can work anywhere, it doesn’t need any particular office space. Even if you are traveling you can buy and sell shares. The risk and effort will end up once the market closes, it won’t carry anything to the next day.

Disadvantages of intraday trading

• Facing huge losses

Most investors face losses due to a lack of knowledge. It required more study and practice. From the practice, the investor can identify the right entry and exit points. An investor should avoid emotional feeling if that happen chances of facing loss is more.

• It required more attention

If you are working in some other company don’t try this intraday one try for the long term investment. Because intraday needs more attention compared to long-term. Some changes in share price will cause huge losses. To avoid that investors should spend more time watching the market and need to be aware of the trends and all.

• Intraday required more learning and practice

As we discussed we need to study a lot to understand the trends and patterns and also need to practice more, then only you can avoid the maximum risk of facing losses. To avoid these scenarios investors should spend more time understanding the trends, different chart analyses, etc. there are many strategies we can apply in the intraday market for that we need good knowledge and practice.

 

Conclusion

Intraday trading is one of the best ways to make more money. Intraday will be riskier, how much risk you are taking profitability will depend on that. If a customer has less capital still the leverage helps the investor to make a profit. At the same time lack of knowledge will lead to more loss. Investors should have more knowledge and practice to perform better. From that learning, the investor can identify the right point of entry and exit. Analysis of a few of the trends and patterns will help you in that. it will be more profitable when you have good knowledge about strategies and all else chances for facing losses will be high