What you need to know about intraday trading in the stock market
Intraday trading involves the purchase and sale of stocks within a single trading day. Like other stock market traders, intraday traders aim to buy stocks when prices are low and sell when the prices rise. The difference is that the day trader must accomplish this in just one day.
An intraday trader, for example, might buy 2,000 shares at 10 a.m. If the price rises at around 10:30 a.m., the trader may sell it to book profits in the stock market. When making the sale, the trader will have to factor in the broker’s commission, applicable taxes, and other charges. All of these costs eat into the actual profits.
Understanding the intraday trading process
Intraday trading can be tough for beginners. If you want to test the waters, make sure you understand how it all works before taking the plunge.
- Margin account: To engage in intraday trading, you will first need a margin account. Provided you maintain a minimum margin, the broker will lend you funds to buy shares. When placing a trade, you will have to pay an initial margin. This is a percentage of the total trade value that the broker will assign. Intraday trades tend to get higher leverage from brokers. So, you must specify that the order is for an intraday trade.
- Order placement: Since stock prices fluctuate constantly, it can be tempting to wait until the last minute before closing an order. However, stocks don’t always move the way you expect them too. A popular strategy is to place a stop loss and a profit target when initiating an order. This will help you to restrict losses or earn some profit from your trades.
- Order closure: You must complete the intraday trade on the same day. For instance, if you bought 100 shares in the morning, sell these off before the trading day ends. Otherwise, the broker will automatically close these off when it runs its risk management system (typically after 3 p.m.). You will have no say over the closing price.
In case of an open buy order, you will then have to take delivery of the shares and pay their full value. If you have an open sell order, the broker will check that you have the necessary shares in your demat account. If not, then the shares will be auctioned off. Any resulting losses will be borne by you.
- Contract note: At the end of the day, you will receive a contract note. This outlines the costs of the trades made. It also highlights additional expenses like brokerage fee, securities transaction tax, Goods and Services Tax, stamp duty, turnover tax, and so on. Your ledger will reflect your actual profit or loss after accounting for these costs.
Intraday trading: How to get it right
A disciplined trader is a successful trader. It helps to be strict about your stop loss and profit targets. A volatile day in the markets could leave you in the red otherwise. Intraday traders also need to monitor price fluctuations, technical charts, and the latest news. All of this helps with risk assessment and gauging how a stock might move.
To trade intraday, open a trading account with a dependable broker like Kotak Securities. With their research support and technology-backed trading solutions, you could make smart intraday trades in real-time.