What is Intraday Trading and How to Do It?
Stock market offers numerous opportunities to traders. In fact, it is one of the daily sources of income for many people. The reason why stock market trading is popular is because it has potential to generate enormous wealth. Moreover, with the right trading strategy in place, the sky is the limit for making profits. In this article, we will learn about intraday trading meaning and its related concept.
Let us first learn about what is intraday trading.
What is Intraday Trading?
Intraday trading or day trading is buying and selling the stocks or securities on the same day. To put it in simple words, intraday trading is squaring off the transaction on the same day it takes place. The main objective of the trader in intraday trading is to book profits on the same day and not carry any overnight position in the market.
As you are now very well aware of the intraday meaning. Let us read about some tips that would help you in becoming a successful intraday trader. The tips for Intraday Trading are as follows;
Intraday Trading Tips
• Trade in Liquid Stock
Since intraday trading involves squaring off the transaction on the same day, trading in liquid stocks is recommended. Liquid stocks means the stocks that have higher volume and one can easily find buyers and sellers for these stocks. Intraday trade can be settled only when there are sufficient buyers or sellers to purchase or sell a stock. This is possible only when the trading volume is high in stock.
• Follow the News
Another important intraday trading tip is following the news regarding stocks. Stocks which are in news are often the most volatile. Intraday traders want to trade in volatile stocks due to big price movement which gives them immense opportunities. Also it is easy to predict the price movement of the stocks that have news inflow. A positive news brings the price up whereas a negative news brings the price down.
• Technical Charts
Trading on the basis of technical chart reading is always the best. Charts help in predicting the future price movement. The different patterns on the chart suggest the possible future movement in the stock price. Technical chart reading is possible only after good training. If you want to trade in stocks on the basis of chart reading, you can open a demat account with IndiaNivesh.
• Prepare a Trading List
Trading in a particular script or stock gives you a better hold of those stocks. You are able to easily predict the price movement in those stocks and trade accordingly. One can prepare a trading list after detailed analysis and in-depth study of the stocks.
• Resistance Levels
Another important intraday trading tip is trading as per the resistance levels of the stocks. The resistance levels of the stocks is that level beyond which the stock does not move. A trader keeps a watch on the resistance levels of the stock and then takes a trade. When the stock breaks the resistance levels, the trader quickly takes a position in that stock and grabs the advantage of sudden price movement.
• Top Gainers and Top Losers
Top gaining and losing stocks of the day offer immense opportunity to traders to trade in them and make a good profit. However, the selection of stocks for trading must be done carefully. Blindly following the list of top gainers or losers for intraday trading can lead to heavy losses and wipe out your capital.
• Weekly Movement of Stocks
The traders often trade in stocks after seeing their weekly price movement. They take the position in the stocks after studying the weekly close of the stock price. A detailed analysis of stocks suggests which stocks are suitable for intraday trading.
As you are now aware of the tips for intraday, let us have a look at how to do intraday trading.
How To Do Intraday Trading
The first and foremost requirement for Intraday Trading is to open a trading and demat account. The demat account can be opened with any broker who provides these services. Selection of a broker must be done by comparing the brokerage rates and services offered by the different brokers in the market. IndiaNivesh is one such broker that provides hassle-free services at competitive rates.
After opening the demat account, the beginners in the stock market must know when they can execute intraday trades and the timings of the market.
Timings of the Stock Market
The stock market in India is open from Monday to Friday. Saturday and Sunday are holidays. The stock markets opens at 9 a.m. and closes at 3.30 p.m. The intraday traders can take positions in the stocks during the above-mentioned time period. It is recommended by the experts to avoid taking any trade position during the first trading hour of the market as during that time the stock market is volatile and taking an intraday position can be a risky strategy.
Let us now have a look at the benefits of intraday trading.
Benefits of Intraday Trading
- There is no risk of taking overnight positions in intraday trading. Any adverse event after the closure of the market does not affect the intraday trader.
- In intraday trading, traders have higher margin in comparison to the investors.
- The potential of Intraday Trading to generate returns is very high. If right trades are taken, an individual can make fortune out of intraday trading.
- The brokers often give a discount to the intraday traders and charge lesser brokerage.
The goal of the Intraday Trading is to generate higher profits. If you are a beginner in the stock market, you can start intraday trading with lower amounts initially. And when you are well equipped, you can slowly increase the trading amount. All you need to do is trade in the right stock and understand the correct entry and exit points of the stock.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Trading vs. Demat account – which account is needed for different investments
Demat account and trading account: both of them are one and the same, right?Wrong.Demat account and trading account are very different and serve different purposes. Let’s explore the differences between the two.Demat and trading account: what are they?If you wish to invest in the stock market, you need both a demat account and a trading account. But what exactly is the difference between the two?Well, a demat account is needed to deposit and hold your stocks when you buy them. Think of a demat account as a savings account (or a storage facility) for your stocks. Just like how you can deposit and withdraw money from your bank account, you can deposit and remove stocks from your demat account whenever you like.On the other hand, a trading account is needed to place ‘buy’ and ‘sell’ orders in the market. A trading account is necessary to conduct any transactions in the stock market. You can register with any online stock broking firm to create an online trading account. When you register, you are provided with a unique ID that allows you to trade in the market.How are the two accounts different?Both demat and trading accounts are necessary to trade in stocks. However, they are quite different. Here is an example to help you identify the difference.Imagine you want to buy a loaf of bread from your local supermarket. You pick a loaf and go to the billing counter. Here, you remove a specific sum of money from your wallet and pay the cashier.In this example, the money stored in your wallet is similar to stocks stored in your demat account. Removing the money from the wallet and paying the cashier is like trading. For this, you need to have a trading account.Which account is necessary for which investment?A major question among investors is: which account do I need to conduct different investment transactions?Well, let’s find out.If you wish to trade in stocks, you need to have both trading and demat accounts. Here, a demat account is needed to store your stocks while your trading account is necessary for conducting the transactions.When is only a demat account necessary?In case of Initial Public Offerings (IPOs), only a demat account is necessary. When you apply for an IPO and you are allotted shares, the shares are transferred to your demat account. However, this is applicable only as long as you decide to hold these shares in your account. But if you wish to sell these shares at a later date, you need to have a trading account.When is only a trading account necessary?If you wish to trade in instruments such as futures, options or currency, only a trading account is required. However, if you wish to trade in stocks, you require a demat account. This includes even intra-day trading when the stocks are held in your account for a single day or less.ConclusionMany investors confuse between trading account and demat account and mix up the two of them. However, the two of them are very different and both of them are required for trading in stocks. Make sure you know the difference before you start your investment journey. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
What are futures and options?
When it comes to the stock market, there are different instruments for investors to put their money in. One such mode of investment for short-term traders and investors is futures and options. What are futures and options? Futures and options are derivative contracts. Derivatives are instruments whose value is determined by an underlying asset. For example, a stock future’s value is determined by the price movements of the underlying share. A copper commodity option’s value is based on the price movements of copper. Derivative contracts are basically a contract between two or more people with regards to the underlying asset. These contracts are not settled. Only the price difference is exchanged between the parties. Basics of Futures and Options: Let us understand futures and options meaning. Futures: A futures contract is an agreement between two or more parties where the delivery is fixed or committed. The difference between the market price and the contract price will have to be paid on delivery of the contract. A futures contract binds the two parties, i.e., the contract has to be settled. This means that at least one party benefits from the contract. A futures contract can be based on any of the following: • Stocks• Exchanges• Commodity• Currency Futures contracts must be settled between the parties even if one of the parties makes a loss in the process. The settlement date is usually mentioned in the futures contract. There are two positions you can take in a futures contract. You can go “long”, which means you can decide to purchase or you can go “short” where you decide to sell. Options: Delivery or settlement in a futures contract is mandatory. However, in an options contract, you have the choice whether to settle the contract or not. It gives the investor a right but not an obligation to buy or sell the assets. This means an options buyer can disregard settling the contract if he finds there is no profit in it. The option holder can exercise the option at any point of time before the settlement date as well. When buying an option, you need to pay a small sum called option premium. In case you don’t wish to settle the option, your loss will be restricted to the option premium amount paid. There are two types of options contracts: • Call option• Put option In the call option, you go along with regards to the underlying asset, i.e., you are bound by the contract to purchase the underlying asset. A put option is the exact opposite where you are bound by the contract to sell the underlying asset. A call option trader believes the price of the underlying will exceed the contract price. In contrast, a put option trader believes the price of the underlying asset will fall below the contract price. It is very important to understand the futures and options basics before investing in these instruments. Derivatives are inherently risky since the price movements cannot be predicted. You may want to take help from the research reports that are given by experts at IndiaNivesh Ltd. that will help you better understand the futures and options market. How to trade in futures and options? Futures and options are standardised contracts that are governed by the stock exchange rules. Since these are standardised, the minimum quantities of underlying assets are already stated by the stock exchange. The contracts between the two parties are fairly consistent with only the underlying assets, the delivery date and the price changing. To invest in futures and options, you need to open a demat account and a trading account with a reputed broker like IndiaNivesh Ltd. It is possible to purchase futures and options online since these are listed on the stock exchange. You can pick the futures or options contract you want to invest in through the trading account. For example, if you wish to purchase one lot of the index futures, you can pick that on your trading account and invest in it. In case of options, you need to pay a premium on the options contract. The prices of futures and options change every day. As a trader, you can decide to sell your futures or wait till the end of the contract. These contracts can generally be of the following durations: Near month – one month Next month – two months Far month – three months The profit or loss on futures and options is calculated daily and either debited or credited from the trader’s margin. To trade in futures and options in stock market, each trader needs to maintain a margin amount with his broker. When a derivative contract is purchased, the entire amount doesn’t have to be deposited. Only a small margin amount has to be deposited. The profit or loss isn’t debited or credited to this margin account unless the derivative contract is sold or settled. In case the minimum margin amount is reached, the trader gets a call to infuse further funds into the margin account. Brokerage on futures and options has to be paid when the futures or options contract is bought or sold. A futures contract is settled daily and the value is carried forward the next day. For example, suppose a trader purchases Nifty futures for 8000. The first day, the Nifty goes down to 7900. This means the trader has made a loss of Rs. 100. This loss is debited from his margin account and the price of 7900 is carried forward the next day for settlement. This is called Marked to Market or MTM settlement. When the futures contract expires, the price on the day before the settlement date is compared with the spot price and the difference is settled. The settlement for options contracts are a little different. While purchasing options, a premium has to be paid. The entire premium amount doesn’t have to be paid, only the difference based on premiums outstanding and receivable for each investor. The options trader has a choice to sell the option before expiry and book his profits. The system automatically settles options contracts by matching them on expiry. The settlement value is the difference between the options value and the spot price. Derivatives are complicated instruments which require a level of expertise before investment. If you are considering investing in F&O segment, then it is better to get the futures and options basics understood perfectly before investing to prevent losing any money. Be sure to restrict your trades till you get experienced to reduce your losses. However, if you’re a savvy investor, derivatives provide another means to earn from the price differentials in the market. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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