What is Intraday Trading / Meaning? Beautiful Dream or Nightmare ? Let’s Decide

What is Intraday Trading / Meaning ?

Intraday Trading is quite a debated topic amongst the experts in the Stock Market. Some argue it to be highly lucrative while most of them call it highly risky.

Some have even called it a gamble.

Well, after hearing everybody out, I have written this article with a pretty balanced view. Explore the article and decide for yourself if Intraday Trading is meant for you or not.

Let’s get started!

Intraday Trading Meaning

Intraday Trading or Day Trading is the process of buying and selling financial instruments on the same day. Intraday trading has a fixed timing, if you do not close your positions within that time, the positions will be automatically closed by the broker. Intraday trading time varies slightly with different brokers.

Intraday Trading Time

Equity Segment: 9:15 am to 3:15 pm.

Currency Segment: The Currency Market opens at 9:00 a.m. but the closing time varies depending on the products traded. Check out the closing time below:

  • Currency Futures & Options (USDINR, EURINR, GBPINR, JPYINR), T-bills Futures & Interest Rate Futures: 5:00 p.m.
  • Cross Currency Futures And Options (EURUSD, GBPUSD & USDJPY): 7:30 p.m.

Commodity Segment: Trading time for Precious Metal, Base Metal, and Energy Commodities is 9.00 am to 11.30 pm.

For Agri commodities, the timing is 10.00 am to 5.00 pm.

Now that you know the basics of intraday trading, you might have got a slight idea of how it is different from Equity Delivery/Delivery Trading. Let’s explore the differences in depth.

Intraday Vs Delivery Trading

Delivery Trading Intraday Trading
Time You can Buy Shares today and Sell them today, tomorrow, after a week, month, year, or a decade. Buy Shares today Sell today itself.
Dividends You can receive dividends from the stocks you hold. You cannot receive dividends in intraday trading.
Collateral Margin You can receive a margin for intraday trading by pledging your holdings. You cannot get the collateral margin.
Leverage You need to pay the full amount to buy shares. You need to pay a partial amount to buy shares. You can buy shares worth ₹ 1 lakh with ₹ 10 thousand with leverages.
Risk Less risk. High risk.
Constant Monitoring Not required. Very much required.
Capital Need big capital as you need to pay the full amount to buy the shares. You can trade with small capital by using the leverage
Short Selling You cannot short sell the shares in Equity Delivery. You can short sell the shares, that is, you can sell the shares without even buying them. (more on it below)

Now that you know the difference between intraday and delivery, let’s find out if Intraday Trading is suitable for you or not.

Intraday Trading Rules

Knowledge: You need to know everything about a stock you trade-in. Just a small swing in the stock prices can earn you huge profits or losses.

Strategy: You need to have well-researched and tested strategies that can help you make good profits and also limit your losses when the trades go against you. You should follow your strategy religiously and wait for it to give proper entry and exit signals. If your strategy is not giving any signals, you shouldn’t get impatient and jump into the wrong trades.

Discipline: Intraday trading requires the discipline of a soldier to master it. Let’s say you enter a trade based on your strategy and it hits the target, you should have the discipline to simply take the profits and exit the trade. You shouldn’t get greedy and stay in the trade expecting to get higher profits.

Similarly, when the strategy doesn’t work in your favor and hits the stop loss, you should take the loss and move on to the next trade rather than staying in the trade and expecting the stock to bounce back.

Patience: Stock prices are sometimes in an uptrend, sometimes in a downtrend or in no trend zone. For instance, let’s say your strategy works only when the stock is in an uptrend and currently the stock you want to trade is in the no trend zone. In such cases, you need to patiently wait for the trend to change.

Trading Tips: There are thousands of people giving tips on various platforms and they all seem very authentic until you start losing out money by consulting them. Hence, you cannot depend on trading tips, you need to have a proper strategy and thorough understanding of stock markets to be a successful intraday trader.

Constant Monitoring: You need to monitor the markets every minute to be a successful intraday trader. If you have a profession that keeps you busy throughout the day, you should certainly not choose intraday trading.

Why do people call intraday trading risky? Check out below!

Risks of intraday trading

High Leverage: With leverage, you can buy stocks worth ₹ 1 lakh at just ₹ 10,000. That sounds amazing, but let me show you how it can also be a nightmare. Refer to the example below:

Let’s assume:

  • You have a capital of ₹ 10,000.
  • You buy 100 shares of ACC @ ₹ 1,000 each with 10 times leverage. The total value of shares bought is ₹ 1,00,000
  • If the stock moves to ₹ 1,050, the total investment value will be 1,05,000 (₹ 1050 x 100 shares). You will get a profit of ₹ 5,000 (1,05,000-1,00,000) That’s 50% profit (Capital 10,000 + Profit 5,000)
  • But if the stock moves to ₹ 950, the value of your investment will be 95,000 (₹ 950 x 100 shares). You will incur a loss of ₹ 5,000 (1,00,000 – 95,000) and half of your capital will be blown away in one shot.

Psychological Risk: 95% of intraday traders lose money because of psychological factors. As I explained above, you need to have the nerves of steel, a lot of patience, and strong discipline. When Intraday Trading is done right, it can be most rewarding. With that being said, let’s explore the advantages of Intraday Trading.

Advantages of Intraday Trading

Short Selling: If you think the price of a particular stock will fall, you can sell the shares without even owning them. Confused? Let me give you an example.

Assume, Reliance is currently trading at ₹ 2,000, and you expect it to fall to ₹ 1,950 today. If you short sell the Reliance Shares at ₹ 2000, and if the prices go below ₹ 2000, you will make profits. And if the price of Reliance goes above ₹ 2,000, you will incur a loss.

Overnight Positions: As you close the positions within a day in Intraday Trading, you will not be prone to the risks of market events or tragedies that happen during the night which will have a direct effect on the stock’s movement the next day.

High Leverage: In intraday trading, you can use leverage to buy stocks worth 2 lakhs with just ₹ 10,000 at Alice blue.

As you are buying and selling day in and day out in intraday trading, you might be wondering if you will be charged heavily for doing so. Well, yes and no. Why no? Find out below.

Intraday Trading Charges

The brokerage charged for Intraday Trading varies with the broker. At Alice blue 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. Check out the detailed pricing here.

They say, “Fine is a fee for doing something wrong and tax is a fee for doing something right”. Well, as you are doing the right thing by Trading, you will be taxed. Explore the Intraday Taxation below.

Tax on Intraday Trading

Profit from Equity Intraday will be treated as Short Term Capital Gains Tax. These gains are taxed at a rate of 15%.

Now that everything is said and done, let’s find out the most important thing!

Is Intraday Trading suitable for you?

To determine if Intraday is suitable for you or not, you need to ask yourself the following questions:

  • Can you monitor the markets regularly?
  • Do you have the discipline to follow a particular strategy religiously?
  • Do you have the patience to wait for the right opportunities?
  • Are you willing to trade without any Tips?

If your answer to all the above questions is “YES”. Then you can learn intraday trading by reading our Intraday Trading for Beginners Guide. The guide covers:

Conclusion

  • Intraday Trading is buying and selling stocks within the same day.
  • If you fail to close your position before the market closes, it will be automatically closed by the broker.
  • A key difference between Intraday and Delivery Trading is the time period you hold the shares.
  • You need to have a proper strategy, complete knowledge of stocks, strict discipline, patience and time to constantly monitor the markets to be a good intraday trader.
  • Using a high leverage can lead to capital exhaustion.
  • You can short sell if you think the stocks will fall.
  • Intraday Profits are taxed at 15%.
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