What Is Intraday Trading?

what is intraday trading

Intraday or day trading refers to buying and selling securities on the same day. The security market is prone to changes that cause fluctuation in securities’ prices during the day. If you want to do it, you must take advantage of price fluctuations and finish an entire transaction before the market closes.

This is not all about it. I have extensively explored the concept of intraday trading, including its pros and cons, how to start it, and how to do it. Let’s get to it.

What Is Intraday Trading?

Intraday implies “within the day.” In the financial world, this term is usually used concerning stock markets to define marketable securities that trade during regular business hours. These securities include exchange-traded funds (ETFs) and stocks. Day traders closely monitor intraday prices to know when to purchase security and then sell it to take advantage of short-term price variations.

Intraday or Day trading is the reverse of interday trading, when you purchase shares in a security and then hold on to that position overnight after closing the markets. It also implies the highs and lows the security intersected during the day.

Intraday price actions are crucial to short-term or day traders seeking to perform multiple trades during a single trading session. These traders will close or settle all their positions as the market closes.

In intraday trading, securities are acquired to make incomes by harnessing the security indices movement, not with the intention of investing. Hence, the fluctuations in the securities prices are harnessed to earn profits from trading the securities. Simply put, the primary purpose of trading in this technique is to make capital gains on procured securities and limit risks by keeping capital invested for a long period.

An online trading account is used for intraday or day trading. While doing it, you need to know that the orders are particular to intraday trading. As the orders are squared off before the trading day ends.

Having ascertained what intraday trading is, let’s examine the advantages and disadvantages.

Pros And Cons of Intraday Trading

Trading on an intraday basis offers several advantages, just like every other trading method. After examining what intraday is, this article won’t be complete without exploring the benefits of engaging in this type of trading as well as the downside that comes with it.

Pros

With the intraday trading increase in popularity, it is essential to know how this art can benefit you. Below are the advantages of intraday trading:

  • Positions are not affected by off-hours broker moves or risk from overnight news.
  • The margins provided to traders relatively exceed the ones given to investors.
  • Average traders have access to augmented leverage.
  • Intraday trading can yield higher revenues compared to traditional investment options.
  • Tight stop-loss orders can secure positions.
  • The brokerage fees charged for intraday trading are minimal.
  • Many trades boost hands-on learning experience.
  • The distance for strategies to pay off is short to medium.

Cons

With every silver lining discussed above on the advantages of intraday trading, there are also storm clouds regarding this trading system. Below are a few downsides of intraday trading:

  • Some securities are off-limits, such as mutual funds.
  • Frequent trades imply numerous commission costs.
  • Losses can rapidly mount, mainly if the margin is used to finance purchases.
  • There may not be adequate time for a position to earn a return for it to be closed out.

How To Start Intraday Trading

To start intraday trading, select the right brokering partner and open a Trading and a Demat Account. Ensure you choose a Demat Account that provides a safe, online, accessible mode to monitor your investments.

Checking for the appropriate tools to help you in your intraday trading activities would also be beneficial. The selected tools could relate to technical analysis, stock tracking, or taxation purposes. Finally, you will need to watch the security market and monitor trends in price movement. Reading and keeping up with the security market can assist you as you start intraday trading.

After examining how to start intraday trading, let’s dive deeper into how to do intraday trading.

How To Do Intraday Trading

Identifying the best intraday security while embarking on such investments is crucial, as it can come with relatively higher risks. However, having the pre-knowledge of how to go about this trading system will help you succeed at the end of the day. Below are the points to note on how to do intraday trading:

  1. Choose Highly Liquid Securities

Liquidity is a crucial feature of intraday securities, as such trade won’t be possible without this feature. Equity shares of small and mid-cap companies can be easily acquired and sold and experience incredible volatility because of market variations.  

The cyclical variations should be observed by examining 52-week high and low values because it explains whether somebody should assume short or long positions while investing.

2. Strong Correlation 

Buying an intraday share with a high relationship with a benchmark index of a respected stock exchange is good. Hence, a considerable change in share prices can be viewed when index value tends to change. 

Since benchmark indices comprise shares of top firms listed in a security exchange, it can be expected that variations will move upward, except for any financial irregularities. Therefore, if this guideline is followed, capital appreciation through intraday trading will be significant. 

3. Volatility 

Great intraday securities tend to have medium to high volatility in price fluctuation. Market value changes over 3% should be avoided during intraday trading. The odds of experiencing a loss are enormous in case of a hostile downturn in an economy’s security market. 

4. Higher Trade Volume

Intraday investors can monitor the trade volume index of a specific security to spot price fluctuations. A higher trade volume index reveals extreme supply or demand, depending on a fundamental firm’s performance. Capital appreciation profits can be made from purchase and sale transactions in such situations.

Final Thoughts

Intraday trading requires you to think on your feet with the presence of your mind. Thus, to partake in it, you must prepare for it initially. There are virtually a lot of securities that a day trader may choose to trade. The first step to making day trading work for you is to choose suitable securities and find out what to trade.

I believe you now understand what is Intraday Trading having read the article. Do you have further questions? Feel free to ask them in the comment section. Happy trading!

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