Most of the people who have become popular due to success in the stock markets are long-term investors. Long-term investing was the default tool to create wealth through equity investments. But recent technological changes have given rise to extremely short-term investments in the form of trading. Intraday trading is one of the most popular types of trading activities.
Intraday trading is a form of ultra-short-term trading that requires you to buy and sell the securities or other financial instruments on the same day. Intraday trading involves squaring off all the open positions before the closure of the market. All the positions have to be liquidated within the day. Intraday trading doesn’t involve any change in the ownership of the securities. Intraday trading was largely a domain of financial companies and professional traders but with the advent of electronic and margin trading, even small investors can opt for intraday trading. Let us start with the basics of intraday trading for better understanding.
The biggest difference between intraday trading and regular trading is the transfer of the ownership of the shares. Intraday trading doesn’t involve the transfer of shares as you have to square off all the positions within a day. Regular trading involves the delivery of shares. Two or three days after a regular trade is executed, the shares start to show in your demat account online. If you change your mind and want to hold on to the shares, you can do that in regular trade as you receive the delivery of the shares. But intraday trading mandatorily requires the liquidation of shares before the market closes for the day.
Intraday trading sounds enticing with a significant amount of money to be made within a short span of time. However, without the right risk mitigation strategies, intraday trading could lead to huge losses. The returns are high but the chances of losing money are also very high. Moreover, to get positive returns through intraday trading, you have to follow the market closely and track every movement. If you can take risks and monitor market movements on a daily basis, only then you should opt for intraday trading.
Just like the stock selection, the timing of intraday trading is critical for generating profits. If you are caught at the wrong time, you may not be able to make money from your trades. The market is extremely volatile in the morning hours, so one should avoid taking large positions in the period. After the first hour, the broader trends become clear and you can easily trade as per the trend.
While the investing strategy depends on the investor, intraday trading has some unique advantages. For starters, the margin provided by the stockbroker for intraday trading is substantially higher than other segments. With more leverage, you can take bigger positions and increase the earnings potential. However, the potential for losses also rises with an increase in leverage. Generally, stockbrokers charge lower brokerage for intraday trades as the frequency of trades is high.
Intraday trading can be a rewarding experience if done with proper research. One needs short to medium term strategies to gain through intraday trading. You can opt for an IIFL demat and trading account and get started with intraday trading. IIFL demat and trading account provides advanced analytics and access to quality research which can be of immense help while day trading.