Day or intraday trading is a common form of dealing in the stock market. It is also called same-day trading because the traders will buy and sell to close all their position before the end of the session. Since stock prices keep fluctuating all day, traders trade in the direction of the trend and make a profit from price movement. Although day trading is standard, one would need knowledge and practice to sustain in the long run.
Who are traders?
The two common categories of stock market participants are investors and traders. The former group invest with the aim of long term gains, while the second group of people stay in the market for a shorter duration and make frequent trades for a small profit. They will make several transactions and base their decisions on the price movement instead of stock fundamentals. Since they use a lot of charts and indicators to identify trade patterns in the market, they are known as technical traders.
Intraday trading basics
Intraday is a form of online trading where traders buy and sell stocks on the same day. To do that, they use online trading platforms. For instance, a trader buys stocks of a company and mentions' intraday' in the portal. It will allow the trader to buy and sell several times before the market closes. During intraday, no share delivery happens. The purpose is to earn profit from the movement of market indices.
An example will make it clear.
The stock opens at Rs 400 in the morning. And, soon the price rises to Rs 450. If you have purchased 1000 stocks at Rs 400 and sold them when the price climbs to Rs 450, you make an incredible profit of Rs 50,000 from the trade. It's all within a few hours.
Important intraday concepts
Anyone starting with intraday needs to understand the basic concepts of the practice. You will often find short selling, long buying, leverage, and margin - such words popping up during discussions. To get the idea of day trading, you need to build solid concepts of the terms you will come across often.
Short selling: You sell stocks that you don't own during short selling. Traders engage in short selling when they expect the share price to fall. For example, you anticipate shares of company ABC trading at Rs 200 to reduce to Rs 150. So, you sell stocks at Rs 200 and buy back when the price reaches Rs 150. In the process, you make a profit of Rs 50 on each share.
Long buying: In an uptrend, when traders expect the market to rise, they will profit by buying shares at a lower price and selling at a higher level. In this type of trade, the possibility of upside is unlimited.
Leverage: It is a practice of borrowing from your broker to enhance your buying power for amplified profit. However, using leverage demands sensibility, or it can backfire if the deal goes south.
Margin: To use leverage, traders must pay a fraction of the volume upfront to the broker, called margin. The requirement of margin will vary with the size of the deal. For example, if the margin requirement is 10 percent and you want to purchase stocks worth Rs 1 crore, you will have to deposit Rs 1 lakh with the broker. Margin allows you to leverage your preposition.
The first step involves opening a trading account. Since only the exchange members are allowed to trade, you must open an account with brokers like Angel One. We recommend selecting a broker based on their experience, track record, products and services.
Once the account is open, you can start trading. But you must understand the basics of intraday trading before investing real money. You can practice on the online platform of the broker to test your strategy before jumping in.
Method and discipline are necessary for successful day trading. Often people make the mistake of being involved in the market part-time. But intraday is a full-time job and demands dedication. You only become a day trader when you are ready to commit full-time.
Trading is a method of earning profit in a short time. If you place your trades carefully, you can make a substantial profit. But the opposite is also true for intraday. A single wrong deal can eliminate all the profit you have earned during the period. However, intraday trading isn't difficult and can be mastered easily with proper knowledge and guidance.