There has been a lot of buzz about Day Trading in the stock market lately. But, do you have any idea about What is Intraday Trading? No?
Well, let’s find out the meaning and definition of day trade in the stock market.
Intraday Trading Meaning
As the name goes, day trading is the type of trading that is done within a day or simply that is done in a single trading session.
Now as you all know, that stock market opens at 9:15 AM and one can place multiple trades till 3:20 PM. Now taking a position and squaring off within the same day is intraday trading.
Just in case if you don’t exit your trades on the same day, your positions will be automatically squared off before the market closes. For this, the broker charges you additional money called auto square-off charges.
Since the time span in day trading is shorter, traders always seek to earn maximum profits by the end of the day. For this, it is important for traders to find the right stock by analyzing different parameters and by doing an in-depth technical analysis of stocks.
However, it isn’t as simple as it may seem. Because short-term trading is usually associated with higher risk, due to the fluctuations in the price.
Therefore, you need to analyze the market, understand price movements, formulate strategies and focus on their appropriate implementation for making profitable trades in day trading.
The price moves during the day according to the short-term changes in demand and supply of the stock. Therefore, traders use technical indicators to read these changes and identify entry and exit points and minimize risk.
To enhance your understanding of what is day trading, let’s checkout the example below –
Intraday Trading Example
Anurag is a day trader, as the market opens, he analyses the market and picks the stock of ABC ltd for trading. At 9:45 am he buys 200 shares at ₹100 each. Two hours later, he exits his position by selling the shares at a price of ₹110 each. Thus, he earned ₹10 profit per share, which would be ₹2000 in total.
Then later on, according to his research and analysis, he found out that the price of the stock XYZ is going to rise, hence he buys 150 shares. Then he exits his position again at 3:05 pm after finding a suitable price and makes a profit of ₹7 per share.
This way, day trading allows you to make multiple trades in a single day and square off in profit. Now, let’s have a quick look at the list of benefits and risks of day trading.
Benefits Of Intraday Trading
Intraday trading offers various capital benefits if done with right information and strategies. Here are some of the pros of day trading.
- Opportunity to generate income regularly
- Use of leverage to earn more with less money
- Eliminates the risk of overnight ownership
- Gives an opportunity to understand price movements
- Offers more liquidity
- Allows you to make money even when the market is down – Short selling
Intraday Trading Risks
Take a look at what risk you may have to bear in day trading
- Loss due to wrong selection of stock
- Market volatility
- Sudden rise or fall in price
- Risk of excessive exposure due to the use of leverage
- Wrong trading signals obtained from technical indicators
You can minimize the losses in intraday trading by choosing and executing the advance order types like stop loss order, cover order or bracket order.
We hope that we have effectively answered your question – what is intraday trading? It must be clear that it is the type of short-term trading in which buying and selling of shares have to be done on the same day.
Therefore, it possesses high risk and you should do proper research and analysis for making money through day trading.
