Finally, we are in the last article of the Intraday Trading Series, in this article, you will learn How to Start Intraday Trading and how to manage risk on every trade to take.
Let’s get started!
Note: If you want to learn intraday trading and looking for a detailed guide, I suggest you read previous articles that cover all the basics of intraday trading:
- Intraday Trading Basics. Determine if it suits you
- Intraday Trading Techniques/Strategies
- Successful Indicators for Intraday
- How to Select Stock for Intraday?
How does Intraday Trading Work?
Check out the below steps to find out.
Step 1: Open a Trading and Demat Account
Firstly you need a Trading and Demat Account. You don’t have to go anywhere else, open a trading and Demat account with Aliceblue, and get the below benefits:
- Zero brokerage on Share Investments & Mutual Funds. The maximum brokerage of ₹ 20 per order on any other trade.
- Buy & sell signals and Advisory.
- Predefined Technical and Fundamental analysis strategies
- Up to 20 times margin on Equity Intraday (You can buy ₹ 1 lakh worth stocks only at ₹ 5000)
- Up to 3 times margin on Option Buying (Only broker in India to provide this service)
- Free API
How to open a trading and Demat account?
If your Mobile no is linked with Aadhar, you can open the Trading & Demat Account online.
Follow the simple process given below:
- First, visit our website and click on Open an Account.
- Fill in your Name, Email, Mobile Number, and State and click on Open an Account.
- Upload account opening documents.
- Provide an IPV (In-person verification) by showing your PAN towards the camera along with your face.
- E-sign the documents by verifying your Aadhaar with your Mobile Number.
- Your account will be activated within 24 hours.
- You can check the Account Activation Status here.
Once you open your account, we will provide you a Trading Platform. Using this trading platform, you can buy and sell shares. Let’s learn how trading platforms work.
What is a trading platform?
The trading platform helps you access the financial instruments listed on the stock markets. Not just that it will also help you with technical analysis, tracking, and planning your trades, etc. Alice blue offers one of the Best Intraday Trading App, check out the apps on the Play Store and App Store.
How to place intraday orders on the trading platform?
Once you log in to the trading platform, you can choose from multiple intraday order types. All the order types are explained below:
Intraday Order Types
1. Margin Intraday Square Off (MIS)
MIS is a simple intraday order type where you are supposed to square off/close your position on the same day, if you fail to do so, your position will be squared off automatically by the broker.
In the case of Alice blue, the automatic square off for Equity, F&O & Currency happens 15 minutes before the market closes that is at 3:15 pm and for Commodity Derivatives Segment, the square off happens 30 minutes before the market closes that is at 5:00 pm.
MIS Orders offer lower leverage compared to Bracket and Cover Orders. Check out the MIS leverage here.
2. Cover Order (CO)
Cover Order is an advanced intraday order type that consists of Market/Limit Order accompanied by compulsory Stop Loss Order reducing the risk of your trade. Hence cover orders offer higher leverage. Check out the Cover Order Leverage of Alice blue.
When you enter a trade using a Cover Order:
- First, a ‘Limit Order’ or ‘Market Order’ is placed.
- Once the ‘Limit Order’ or ‘Market Order’ is successfully executed, the Stop Loss Order is also placed automatically.
3. Bracket Order (BO)
Bracket Order is an advanced intraday order type that consists of three orders in it:
- Limit Order
- Target/Exit Order
- Stop Loss Order
When you enter a trade using a Bracket Order,
- First, a ‘Limit Order’ is placed.
- Once the ‘Limit Order’ is successfully executed, both Target and Stop Loss Orders are also placed automatically.
- If the stock hits ‘Target’, the ‘Stop Loss’ order will be automatically canceled and vice versa.
Note* Most brokers in India allow Bracket Orders and Cover Orders only for Intraday Equity and Futures segment but Aliceblue offers Bracket and Cover Orders for all the segments which also include Stock Options Buying and Selling etc.
Usually, Bracket Orders offer higher leverage. Check out the Bracket Order Leverage here.
The key difference between MIS, Bracket & Cover Order is, in MIS Order Type, you need to close the position by yourself manually while in the case of Bracket & Cover Order, the order will be closed automatically once the stock price reaches the Target Price or hits the Stop Loss (Needless to say, you can close the positions manually as well).
There are a lot of things you need to consider before entering the Trade. But first, you need to know if you have enough cash to take the trade.
Step 2: Calculate the amount of cash required to enter the trade.
Using a margin calculator, you can calculate the number of shares/lots you can buy/sell with the available cash in your trading account and also compare the leverage available for different stocks.
Let’s say you want to buy ACC Shares, all you have to do is, Open Aliceblue Margin Calculator, search for ACC, Enter the Cash Available and the Price of the Share and Click on Calculate. You will get an estimate of how many shares you can buy with the available cash.
As I am writing this article, ACC is trading ₹ 1,679, so if you have cash worth ₹ 10,000, you can buy 47 shares of ACC Intraday. That is you can buy shares worth ₹ 78,913 (₹ 1679 x 47 shares) with just ₹ 10,000.
Once you have ascertained how many shares you can buy, you need to determine the risk you are going to take in the trade.
Step 3: Calculate the Risk of the Trade
How much money are you willing to lose in every trade? This is the most important question you need to ask yourself before you start trading.
You might have heard the quote, “Go big or go home”. Most beginners follow this rule out of excitement, risk a ton of money in a single trade, lose out the whole capital, and start calling Intraday Trading a gamble. But that’s not what you are gonna do. Let’s learn how professionals take risks.
Most professional traders take a normalized risk. Normalized risk is nothing but risking a fixed percentage of money on every trade to take. Usually risking 1 – 3% every trade is the most desirable and most followed technique across the traders in the world. If you follow the Normalized Risk Method, you will be taking an equal amount of risk in every trade.
Let’s say, you have 1 lakh capital to trade and you are willing to risk 2% in every trade, you will be risking ₹ 2,000 per trade (₹ 1,00,000 x 2%).
How to calculate the risk of every trade?
You can calculate the risk based on the entry and stop loss of the trade. Keeping the above example in mind, let’s say you decide to buy Ashok Leyland shares today which is trading at ₹ 100 and decide to put a stop loss at ₹ 95.
- Entry: ₹ 100
- Stop Loss: ₹ 95
- Risk amount: ₹ 2,000
Once you have determined the stop loss and risk amount, you need to decide how many shares you need to buy to take the determined risk.
So all you have to do is calculate the difference between Entry and Stop Loss and divide it with the risk amount.
In the above case, the difference in the entry and stop loss is ₹ 5 (100 – 95), So you divide the risk amount ₹ 2,000 by ₹ 5, you will get 400 (2000/5). This 400 is the number of shares you should buy in this trade.
Here’s how your trade will look like:
If you enter the trade at ₹ 100, your total investment value will be ₹ 40,000 (₹ 100 x 400 shares). If the trade hits Stop Loss, your investment amount will be reduced to ₹ 38,000 (₹ 95 x 400 shares) and you will lose the risked amount that is ₹ 2,000 (₹ 40,000 – ₹ 38,000).
Now that you have learned how much risk you need to take on every trade, you should also know how much your broker charges you on every trade to take.
Step 4: Calculate the brokerage you need to pay for every trade.
Calculation of brokerage will not be an issue if you decide to trade with Aliceblue, we charge a brokerage of a maximum of ₹ 20 or 0.01% on turnover per order (whichever is lower) irrespective of the size of your trade.
You can buy shares worth 2 lakhs or 1 crore, the maximum brokerage charged will be ₹ 20 per order.
You can use Aliceblue’s Brokerage Calculator to calculate the brokerage on every trade.
- You need to open a trading and Demat account to get started with trading.
- A trading platform helps you access all the financial instruments listed in the stock market.
- The key difference between MIS, Bracket & Cover Order is, in MIS Order Type, you need to close the position by yourself manually while in the case of Bracket & Cover Order, the order will be closed automatically once the stock price reaches the Target Price or hits the Stop Loss.
- With a margin calculator, you can calculate the number of shares/lots you can buy/sell with the available cash in your trading account.
- Normalized risk is nothing but risking a fixed percentage of money every trade.
- You can calculate the brokerage for every trade using a Brokerage Calculator.