Intraday Trading Meaning

Let us first try to understand the true Intraday Trading meaning. As the name suggests, intraday means within the day and intraday trading imply a trade closed within the span of one day or one trading session.

Traders who enter and exit trades within the same day are called intraday traders.

Such traders square off their trades, that is, buy shares and sell shares or other financial instruments before the closing of the market each day. The trading can be done in stocks, currencies, commodities etc.

What is Intraday Trading? 

Due to the nature of intraday trading (day trading), there is absolutely no change in the ownership of the underlying securities of the trades. The intention of day trading is to earn profits by making trades in a very short interval of time.

“Equity intraday trading” refers to buying and selling of equities or stocks during the trading hours of a given day.

No doubt intraday trading for beginners seems to be complex and can lead to losses. It is therefore important to understand its meaning with example before beginning.

Let us take an example to understand the intraday trading meaning in the simplest ways:

On July 31, 2019, an intraday trader buys 100 stocks of ESCORTS for ₹461 each.  He exits the trade before the closing of the market on the same day at the price of ₹470 per share.

Thus, an overall intraday profit of ₹9 per share is made thereby, making a total of ₹900.

In order to make consistent profits in intraday trading, one should try to follow the trend of market movement during the day. For example, if the trend seems to be positive, one should enter a long position. It means to try to buy first at a lower price and sell later in the day at a higher price in order to make profits.

On the other hand, if the trend seems to be negative, one should enter a short position. Entering a short position means trying to sell first at a higher price and buying later in the day at a lower price to book profit.

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Proprietary Day Trading Meaning

Moving a bit ahead of understanding the intraday trading meaning, there is another form of trading i.e.Proprietary Trading that you must be aware of.

The term “Proprietary Trading” means trading done by a financial company or a bank using its own money instead of using their clients’ money and earning through commissions.

A proprietary day trader is generally a trader on a contract basis who trades shares, futures, options, commodities, currencies, etc. in order to improve the profits of the firm. 

Proprietary day trading means that all such orders are squared off within the same day. Make sure you understand the Intraday sqaure off time while you get into bigger lengths of the shorter format of trading to avoid hidden charges.

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Intraday Trading Example

After understanding the meaning of intraday trading, let’s look at specific examples of day trade.

Day trading can be done in the segment including equity, futures, and options. All that is required is the right strategy and knowledge.

So apart from picking, the stock for intraday trading one must be familiar with the advanced order type that helps in minimizing the losses. Other than this, one must be aware of the timings to prevent any kind of losses during the day trade.

Now let’s take an example to have a quick understanding of the topic.

So let’s there is some kind of positive market news around the cement sector.  Single news is enough to change the whole scenario in the market. So here let’s say Amit came across the news and pick seven to eight cement stocks.

Now although the news was around the sectors one must be alert while picking the stock as not all the stock can give you the better profit.

After doing proper analysis he picked the stock and started trading. Being bullish he did multiple trades and at the end of the day reap the best benefit out of it.

Now since the volatility is at the highest in the day trade and therefore it is highly recommended to make use of the stop-loss order to prevent losses.

This is how intraday trade works.

All you have to do is to be alert around the market news and make a decision depending upon your analysis.

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How to do Intraday Trading?

The art of intraday trading is quite difficult to master, the techniques of which have been covered in another article. The idea is that you keep your focus to learn intraday trading. Nonetheless, let’s go step by step.

First of all, an intraday trader needs to determine prices at which he/ she will enter the trade and the target price where an exit from the trade needs to make. This is the initial step that you should consider for avoiding Intraday Trading Mistakes.

Also, one of the most important things to remember while intraday trading is to decide a stop loss which should be strictly adhered to under all circumstances.

This should be done in order to protect oneself against the risk of making huge losses in intraday trading if the market starts moving in an unexpected direction.

An equally important thing to do is to book profits at the target price as and when they reach and not fall in the trap of greed.

Now to do intraday trading, the brokers offer leverage facilities to traders. But with the New margin rule of SEBI this leverage facility has been taken away.

Want to know how margin trading has changed the concept of Intraday Trading.

Here is the detail.

SEBI New Margin Rules for Intraday Trading

Earlier the broker used to offer the benefit to traders by offering them high margin benefits. With this margin trading, the traders were able to trade more even with the limited fund.

So let’s say you are a beginner and want to start small by trading with ₹500, but with the margin trading, you would have to trade up to 20 times more by availing of the margin benefits.

This margin was decided by the broker and ranges from 5 times to as high as 40 times.

But with the new SEBI guidelines, the traders would now be able to reap the benefit of only 5 times thus limiting the potential to earn profit.

This rule is going to be effective from September 01, 2021, and if not taken back or corrected, this is going to affect the traders’ community to much extent.

How Much Money is Required for Intraday Trading?

Now after the new margin rule, the capital requirement of traders has increased. So, how much amount you want to trade depends totally upon you, but what amount you can actually start trading is the major question here.

When it comes to the minimum amount, you can start trade with the as smallest amount of ₹1, but talking practically the minimum requirement again depends upon the capital you want to invest and the loss you can bear if the market reverses.

The amount with which you trade thus depends upon different factors like how much you want to earn, your risk appetite, the stock you picked etc.

So trade smartly and make the decision to avoid losses and earn maximum profit.

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Intraday Trading Books

What can be more beneficial than books, when it comes to understanding the meaning of intraday trading. There are many books that you can refer to to understand the basics and advanced concepts of day trade.

Also, these books provide you the knowledge of different strategies in the simplest language that eventually makes your trading journey simpler and easier.

Further, the patience and mindset of the trader are the two important aspects of day trade but how to make it possible is also covered in some of the books mentioned below.

So, pick the one that suits most of your requirements and multiply your money by understanding the market moves.

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Intraday Trading Advantages

Now, you have understood the intraday trading meaning. Let’s find out a bit more about this form of trading and know about its pros and cons.

There are many advantages of intraday trading which have been listed below:

1. No Blocking of Capital – Since all the trades are squared off the same day in intraday trading, it does not involve any blocking of the capital. An intraday trader either books profits at target prices or takes losses at the stop loss.

The output of the day trading can be easily evaluated at the end of the day.

2. Benefits of Both Bullish and Bearish Sentiments – A major benefit of intraday trading is that traders can benefit from both kinds of sentiments. Day traders can enter into long as well as short positions according to the trend of the stock movement.

3. Protection Against Unexpected News Causing Huge Gap Ups and Gap Downs – In case of disclosure of some unexpected news after market hours which can cause huge rise or fall in prices of securities, investors can be affected but intraday traders are shielded from such movements as they do not have any open positions at the end of the day.

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Intraday Trading Disadvantages

Just like any other thing, intraday trading also has some disadvantages which have been discussed below:

1. High Risks If Market Moves in Unfavourable Direction – Since the intraday trade has to be squared off before the closing of the market each day, sometimes, it can expose the traders to higher risks as compared to investing in stocks.

2. Requires Constant Attention – Another disadvantage of intraday trading is that it requires the constant attention of the trader. Until and unless a trader is dedicated to the stock market entirely for the day, one should not enter into intraday trades.

3. Higher Commissions or Brokerages – Due to frequent trades in intraday trading, brokerage costs become quite high as compared to investments in the stock market.

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Conclusion

Intraday trading meaning is easy to understand which is entering and exiting into trades within the same day but it takes a lot of practice to master the art.

It is a double-edged sword and one should be very careful while entering the world of intraday trading. To get a better understanding and to make calculative decisions right from the beginning, it is recommended to follow the right rules. For this, you can refer to the trading guide for beginners and make a better start.

In case you are looking to get started with intraday trading, let us assist you in taking the next steps. Just fill in this basic form to get started:

 

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