Intraday Trading

Intraday trading means buying and selling stocks on the same day. All trades are closed before the market closes, so no shares are owned overnight.
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Intraday Trading
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3 mins
25-February-2025

Intraday trading, also known as day trading, means buying and selling stocks on the same day to profit from price changes. Traders need to close their trades before the market closes. If not, the broker might automatically close them or turn them into regular trades. It helps reduce risks by avoiding long-term investments. Keep reading to learn how it works and how you can get started!

How to do intraday trading?

Here’s how you can do intraday trading-

Choose highly liquid stocks

Intraday trading hinges on liquidity, as trades cannot occur without it. Small and mid-cap stocks offer ease of buying and selling but can also be highly volatile due to market swings. Analyzing the 52-week high and low provides crucial insights into these cyclical variations, helping investors determine appropriate long or short positions.

Volatility considerations

Optimal intraday stocks typically exhibit moderate to high price volatility. It's generally advisable to avoid stocks with price swings exceeding 3% during intraday trading, as the risk of substantial losses increases significantly if the market or the stock experiences a downturn.

Strong correlation

For intraday trading, it's generally advantageous to select stocks that closely correlate with a major stock exchange's benchmark index. This correlation suggests that stock prices will likely move significantly when the index fluctuates. Because benchmark indices typically comprise leading companies, price movements tend to be upward (assuming a healthy economy). Therefore, following this strategy can potentially lead to substantial capital appreciation through intraday trading.

Higher trade volume

Intraday traders can use a stock's trade volume index to gauge potential price volatility. A high trade volume index suggests either strong demand or significant supply, often driven by the company's recent performance. These situations present opportunities for profit through both buying (going long) and selling (going short) transactions.

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How intraday trading works?

Intraday trading involves capitalising on short-term price fluctuations within the same trading day to generate profits. Traders closely monitor stock price movements and utilise technical analysis tools to identify trading opportunities. Strategies such as scalping, which focuses on small frequent gains, and momentum trading, which capitalises on price trends, are commonly employed. It requires thorough market knowledge, effective risk management, and the ability to make quick decisions in a rapidly changing environment.

Features of intraday trading

Here are the features of intraday trading-

1. Ownership of stocks:

In intraday trading, traders must open and close their stock positions within the same trading day. If the position is not closed, it is automatically squared off at the prevailing market price. Since trades are settled within the day, ownership of the stock is not transferred to the trader.

2. Same day trading:

The objective of intraday trading is to capitalise on price fluctuations rather than to own stocks. All transactions must be completed within market hours to take advantage of daily price movements.

3. Leveraging:

Intraday traders can leverage their positions by borrowing funds from brokers to enhance their buying power. While leverage can amplify potential returns, it comes with associated risks and conditions that traders should thoroughly understand before utilising it.

4. Research:

Successful intraday trading requires extensive research on target stocks, analysis of market charts using indicators, and the development of personalised strategies. Implementing a stop-loss is crucial to mitigate the risk of substantial losses.

Benefits of intraday trading

Following are the benefits of intraday trading-

1. Lower risk:

Since stocks are bought and sold within the same day, exposure to long-term market risks is minimised. Unlike standard trading, where price fluctuations over an extended period can result in significant losses, intraday trading reduces this risk.

2. Lower commission charges:

Intraday trading typically incurs lower brokerage fees compared to standard trading, as there are no delivery charges involved. The costs related to securities transfer, such as transaction tax and service charges, are included in the brokerage fees, making it a cost-effective option.

3. Higher profits:

If executed with the right strategies, intraday trading can lead to substantial profits. In a rising market, capital appreciation can be achieved, and during downturns, traders can employ short-selling strategies to generate profits.

4. Liquidity:

Intraday trading offers high liquidity, allowing traders to recover their invested funds quickly without the need to hold assets for an extended period. This feature ensures financial flexibility to meet other personal or investment needs.

5. Capital gains through market fluctuations:

Traders can profit from both rising and falling markets by adopting appropriate strategies. In bullish markets, purchasing and selling stocks can lead to gains, while in bearish conditions, short-selling can provide profit opportunities.

Intraday trading indicators

Let us discover the different types of intraday trading indicators:

1. Moving average

Moving averages are the most common and widely used indicator. It is the line on the stock chart which connects the average closing rates over a given period. If you are considering a more extended period, the moving average will be more well-grounded. Moving averages let you comprehend the underlying movement of price as most of the time price of a stock doesn’t move only in one direction

2. Bollinger bands

Bollinger bands are a bit more advanced than moving averages. It comprises three lines - the moving average, an upper limit, and a lower limit. With all these, you can comprehend the underlying movement of the stocks better than just by moving averages

3. Momentum oscillators

Sometimes stock prices move unrelated to the bullish or bearish market trends

4. Relative strength index (RSI)

This gets calculated in the index form, narrowing the RSI score ranging between 0 to 100. The index increases when the price of the stock rises and vice versa.

How is intraday trading different from regular trading?

Let us explore how an intraday trading is different from a regular trading:

Aspect

Intraday trading

Regular trading (Delivery-based)

Definition

Buying and selling within the same day

Buying and holding for long term

Objective

Capitalising on short-term price movements

Long-term growth or dividends

Position duration

Must be squared off before market close

Can hold shares beyond the same day

Ownership change

No change in ownership

Ownership changes from seller to buyer

Settlement

Same-day settlement

Settlement within T+1 day after transaction

Risk and reward

Higher risk due to market volatility

Less volatile, requires patience

Tools

Technical analysis, charts, indicators

Fundamental analysis, company research, financial statements


Intraday trading vs delivery trading

Unlike intraday trading, if you buy a share but do not sell it on the same trading day, it is called delivery trading. In delivery trading, the stocks you buy get credited to your Demat. You hold it for as long as you want, for days, months, or years before selling it. Thus, you continue to have ownership of these stocks. In delivery trading, investors consider the long-term price movement of the stocks to book profits rather than their price fluctuations within the day.

Advantages and Disadvantages of Intraday Trading

Here are the advantages and disadvantages of intraday trading that you should be aware of-

Advantages

The trader can make profits based on the movement of the market price of the stocks.

The trader can avoid delivery charges.

If the trader doesn’t close the deal, the position gets squared off automatically, if it's set in the trading platform.

Disadvantages

The trader will not own the shares he traded for the day

The trader incurs a loss if the closing rate is not conducive. If the market is unfavorable, he may have to forego profit.

Alternative trading methods

  1. Standard trading:
    This method involves long-term investment in stocks, enabling investors to benefit from both capital appreciation and dividend payouts. Although brokerage fees apply, the steady income generated offsets these costs.
  2. Momentum trading:
    This strategy focuses on investing in stocks with high growth potential that may be undervalued due to temporary market fluctuations. Traders aim to benefit from relative or absolute momentum in stock performance.
  3. Swing trading:
    Similar to momentum trading, swing trading targets short-term market movements. Traders invest in volatile stocks and sell them once a significant price movement is observed, aiming for quick profits.

Conclusion

Intraday trading allows investors to capitalize on short-term price fluctuations without requiring ownership of the underlying shares. This contrasts with delivery trading, which is geared towards long-term investment. While intraday trading offers the potential for rapid gains, it also carries greater risk due to market volatility. Traders often employ technical analysis tools, such as moving averages and Bollinger bands, to inform their decisions. However, it's crucial to acknowledge the inherent risks, including potential losses and the absence of shareholder rights. Ultimately, the suitability of intraday trading depends on an individual's investment objectives, risk tolerance, and understanding of market dynamics.

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Frequently asked questions

What is intraday?

Intraday, often referred to as day trading, involves buying and selling stocks or other financial instruments within the same trading day. All positions are closed before the market closes, so no shares are held overnight. The main goal is to capitalise on price fluctuations throughout the day.

Can I earn 5000 a day in intraday trading?

Earning Rs. 5000 per day in intraday trading is possible but not guaranteed. Success depends on factors like market conditions, investment size, strategy, and the trader's skill level. Risks are significant, and potential losses should always be considered. Consistent profitability requires experience, discipline, and effective risk management.

What is the difference between day trading and intraday trading?

Day trading and Intraday trading are different terms but have the same meaning.

Buying and selling shares on the stock exchange on the same day are known as Intraday trading. As buying and selling happen on the same day, it is also known as day trading.

The prices of shares keep moving up and down during the day, the trader makes a profit from the movement of the share price. The shares do not get stored in the Demat account.

How is intraday trading different from regular trading?

Typically, buying shares requires paying the full share value upfront, and selling requires holding the shares in your Demat account. However, intraday trading offers a different approach. It allows you to trade by paying only a portion of the total share value as margin.

Action

Delivery Trading

Intraday Trading with Margin

BUY (10 shares of ITC at ₹450)

You pay ₹4,500 (₹450 x 10).

With a 20% margin, you pay ₹900 (₹4,500 x 0.2).

SELL (10 shares of ITC)

Shares are sold from your Demat account.

You don't need ITC shares in your Demat account. You can sell first and buy back later within the same day.
How does intraday trading work?

To perform intraday trading, the trader should select the intraday trading option in the online platform of the respective Depository Participant (DP) or the stockbroker.

In intraday trading, the trader takes a position in the stock market and once the price movements of the specific share price are conducive, he will close the deal. If the position taken during the day is not closed by the trader, it automatically takes the reverse position at the closing market rate. The trader does not own the shares at the end of the day as the intention of the trader is to book profit based on the movement of the price.

How to do intraday trading?

A trader will have to select the Intraday trading option in the online trading platform. It is not available by default as an option but needs to be started by filling out an application form. The brokerage charges for intraday trading are different from delivery-based trading.

In the case of intraday trading, if a trader takes a position in the stock market, he will have to close the deal within the trading hours of the same working day. If the position is not closed by the trader, the stock will automatically get squared off at the closing price.

Is intraday trading profitable for beginners?

Intraday trading presents opportunities for rapid gains through capitalizing on short-term price fluctuations. Success in this arena, however, demands substantial market knowledge, well-defined trading strategies, and decisive action.

Who should participate in intraday trading?

Anyone good at analyzing market trends and patterns can participate in Intraday Trading. This is popularly known as Technical Analysis. A trader must know how to read and understand various trends through different types of indicators on the price chart.

Can I hold intraday shares?

No, you cannot hold intraday shares after the market closing hours. If you haven’t, your broker will automatically square off the position.

How many shares can I buy intraday?

There is no such limit on the number of shares you can buy intraday, however, you need to keep a check on the fact that trading on more than one share at once can be risky and you may not be able to focus on the trends and patterns of one specific share. Only if you are highly skilled in Technical Analysis you should go for more than one trade at once.

How much money can start intraday trading in India?

There is no fixed amount to start intraday trading. You can start with any amount you want. If you are a new trader, then it is recommended to start small. An advantage of trading on Intraday is that all brokers provide leverage, which means you can buy shares worth more than available funds.

What is a stop loss and why is it important in intraday trading?

A stop-loss order is designed to mitigate potential losses in a trade. It's a buy or sell order that triggers when a stock price moves against your position. For example, if you buy a stock at ₹100 and want to limit your loss to ₹5 per share, you would place a stop-loss order to sell the stock automatically if it drops to ₹95.

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