Beginners Guide to Intraday Trading

Intraday Trading or same day trading is one of the best ways to make quick bucks from the stock market (warning: this is a very risky process). Is it that easy to make money? Can someone just earn thousands by dealing with stocks in a day? Well, the answer for this question is yes and no as well. The first thing is no, Intraday Trading is not easy and if you take a wrong step, you can lose your entire investment just like that.

If you want to make it big in intraday trading, the first thing that you should develop is the psychology as well as science behind the rising and falling markets. This intraday trading is all about price movements.

In simple words, intraday trading means buying and selling the stock on the same day before market closes. If you fail to sell the stocks, your broker can turn it into delivery trade or square it off. I know all these words won’t make sense to you now, but as we get into the article, you will understand everything. Make sure to stick with me till then. Let’s get started now.

As I said, Intraday trading is all about capturing the right price movements. Let us take an example of a stock- Britannia. Today, the stock price of Britannia is 3,950, the right trader will purchase it at 3,950, sell it when it becomes 3,955. The trader won’t wait until it reaches 3,960. Here if one keeps waiting for it to become 3,960, there are high chances of it falling below 3,950 too. So, once you see the profit, it is time to sell those shares without getting too greedy. There are so many people out there who lost a lot just because of their own greediness in intraday trading.

Do you predict that a particular stock price is going to fall during the trading hours and you already own some of them? Start with selling off the stocks that you have in hand first. For example, if the stock you own now is at 590 rupees, sell it now and wait for the stock price to fall later in the day. When it falls till 580 or something, purchase the stocks at the same volume again, this means that you will have a profit of 10 rupees on each stock. This is called shorting.

There are so many people who made great profits on this in March 2020 due to the fear of COVID-19. There is one real time example for you. Back in the day on 23rd March, 2020 the shares of Maruti Suzuki fell down. It’s share price was 4600 which eventually dipped to 4,200 during the trade timings. This gave ample time for the traders to sell and buy. 

There is another option in Intraday Trading, if you are not sure about individual stocks, you can always buy or sell NIFTY. In March 2020, NIFTY fell to 8000 from 11000. One thing about intraday trading is that you won’t get any stocks delivered to your account during the day. Hence be it a buy/sell sequence or sell/buy sequence, it doesn’t matter.

Before we get into the depths of Intraday Trading, here is a disclaimer for you. Every stock price, details that have been mentioned in this article are only for example purposes, we are not endorsing these stocks, please do not sell, buy anything just because you have read it in this article.

Where to Trade?

Be it intraday trading or stock market investment, you have to do it with Demat and trading accounts. Although you just need a trading account for intraday trading, the stock brokers will also provide you with a Demat account for long term investment. You can open these accounts with your banks (in case they offer) or these are always some reliable platforms like Zerodha, Groww where you can make your stock trading and investing. Remember that there are brokerage fees on this platform, so compare the fees of different platforms and then stick to the one that you feel fit.

Different Intraday Trading Segments in India

In India, Intraday trading can be done in four segments- Equity and its derivatives (also called as Equity F&O), Currency and Commodity F&O.

Equity Intraday Trading

The first thing that one has to remember in Intraday trading is that you shouldn’t have to think about holding shares for more than a day. You have to buy and sell the stocks within a day considerably by around 3:20 pm at most. The trade must be squared off before the trading timing ends. 

You can do intraday trading with the stocks that are listed on BSE and NSE. Make sure to pick a stock that is highly liquid so that you have sellers and buyers for them all the time and you are good to go. 

Also one thing that you have to remember here is to not trade the banned stocks. Both BSE and NSE have banned some company stocks because they have abnormal changes in the price throughout the day. These stocks are called “T” stocks. Do not trade them at any cost as their prices can change a lot within one trading day. 

Equity Derivatives Trading

In equity derivatives trading you will find Futures and Options of underlying stocks. These Futures and Options are available on only high liquid stocks and are selected by the stock exchange only. These are quite complex and one has to gain enough knowledge before they delve into these.

Commodity Trading

Commodity Trading includes products like metals, energy based products like petroleum, oil, gases and agro based commodities. 

There are certain exchanges where you can trade these commodities. They are

  • MCX
  • ICEX
  • NCDEX
  • ACE
  • NMCE

Out of these MCXis the biggest exchange. You can trade agro based commodities from 9 am to 5pm whereas the remaining commodities can be traded from 9 am to 11:30 pm. 

Trading Terminology You Need to Understand

There are some important terms that one needs to understand before they dip their toe in intraday trading. We are going to explain each of these terms so that you can know what each term means and how you can use them during intraday trading.

Leverage or Margin

Leverage or Margin will help you trade in higher amounts even though you don’t have cash in your account right now. This confused you right. I will explain to you with an example.

So, you want to buy 1000 stocks worth of let’s say 10 rupees. For this you need an amount of 10,000 in your trading account. However, you have only 5000. Your broker can provide you with the remaining 5000 rupees so that you can complete the intraday trading for that day. 

Your stock broker has provided a leverage of 2 times of your money. This is called Margin or Leverage in intraday trading.

Market Order

Market order means the current trading price of the stock. If you want to buy or sell a liquid stock right now, you can place it in the Market Order. The stock will be brought or sold at the best price available at this particular moment. 

Limit Order

Limit order helps you to buy or sell specific stock at the price that you want. For example, you want to purchase a stock of let us say Britannia at 3,700. Then you have to place the limit order of the same with your stock broker. 

You can follow the similar procedure with selling too. If you want to sell any of your stock once it attains a particular price, you can place the limit order and your broker will sell it for you.

Stop Loss Order

As the name suggests, you will get to stop yourself from falling into a loss trap with stop loss order. For example, you have purchased a stock at 1000 and was expecting it to reach 1010 during the intraday trading.

However, the price is starting to fall and it is at 998 already. You can place a stop loss order at 997 or 996 so that once the stock falls to that price point, your shares will be sold. This way the stop loss order will prevent you from facing more losses.

Bracket Order

This is another option to reduce the risk factor in intraday trading. You can place a bracket order consisting of the price at which you want to buy the stock, price at which you want to sell it and also the loss at where you want to lock the stock.

Basically it will lock your loss and profit. I know this sounds pretty confusing so will provide you with an example-

For suppose, there is a stock that is priced at 500. You can place three orders for that simultaneously-

  • Buy order- 500
  • Target profit order- 510
  • Target loss order- 496

All of these three orders will be launched simultaneously under bracket order preventing huge risk for you.

Margin Intraday Square Off (MIS) Order

MIS orders are the intraday orders that need to be squared off before the trading day ends. The stock brokers usually square off your intraday orders before 3:15 pm everyday unless you choose to turn those orders into delivery orders.

Cover Order

Cover order is quite similar to bracket order. It also helps in preventing losses for the traders. In cover order you can place buy order along with the stop loss. You have to enter both buy and stop loss orders in the trading platform and you can prevent the losses altogether this way.

Pros and Cons of Intraday Trading

Intraday trading has both pros and cons. One should always be very smart when they are opting for intraday trading. Here we are listing some of the pros as well as cons that you need to know

Pros

  • When compared to investors, traders get higher margins and it can be upto 60X.
  • The brokerage fees are very small when compared to the delivery order fees.
  • There is a chance to get better profits in a short holding period.

Cons

  • Requires constant attention
  • Using of leverage can result in losses at times
  • Less returns on the invested capital when compared to investments
  • More risk

Important Intraday Trading Tips 

Here are our two cents for anyone who would want to invest in the stock market

  • Make sure to place order using stop loss trigger to avoid maximum losses
  • It is important to have a strategy before you get your hands on intraday trading. The mindset of trading is important and it is not the same as the investor mindset. You are not thinking about long term returns here so make sure to think like that only. 
  • Always have a look on the market trends
  • Do not take trading suggestions from anyone. It is your money, so others trading strategies may or may not work. Do ample research and read the market trends of the stocks, then proceed with trading. 
  • Whenever your target  price is attained by the stock, book the profits. Do not get greedy as it may result in losses. Challenging the market is never a good idea.
  • Keep a check on the capital that you are investing. Don’t go overboard. It is suggested to go with 10% or even smaller sums only.
  • Emotions have no place in the stock market. You may lose today but that doesn’t mean you have to invest more or do something to recover those losses the next day. Revenge trading is never a good idea.
  • Before the market hours close, square off all of your trades at any cost.
  • Trade only in the liquid stocks of companies that you know and are well versed about it. Trading in companies that you have no idea about is risky.
  • Ignore rumors of any kind while trading.

At the end of the day, stock trading is risky. So, always think twice, do not rely on anyone’s suggestions. 

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