Let us first try to understand the true Intraday Trading meaning. As the name suggests, intraday means within the day and intraday trading imply a trade closed within the span of one day or one trading session. Traders who enter and exit trades within the same day are called intraday traders.
Such traders square off their trades, that is, buy shares and sell shares or other financial instruments before the closing of the market each day. The trading can be done in stocks, currencies, commodities etc.
Equity Intraday Trading Meaning
Due to the nature of intraday trading (day trading), there is absolutely no change in the ownership of the underlying securities of the trades. The intention of day trading is to earn profits by making trades in a very short interval of time.
“Equity intraday trading” refers to buying and selling of equities or stocks during the trading hours of a given day.
Let us take an example to understand the intraday trading meaning in the simplest ways:
On July 31, 2019, an intraday trader buys 100 stocks of ESCORTS for ₹461 each. He exits the trade before the closing of the market on the same day at the price of ₹470 per share.
Thus, an overall intraday profit of ₹9 per share is made thereby, making a total of ₹900.
In order to make consistent profits in intraday trading, one should try to follow the trend of market movement during the day. For example, if the trend seems to be positive, one should enter a long position. It means to try to buy first at a lower price and sell later in the day at a higher price in order to make profits.
On the other hand, if the trend seems to be negative, one should enter a short position. Entering a short position means trying to sell first at a higher price and buying later in the day at a lower price to book profit.
Proprietary Day Trading Meaning
Moving a bit ahead of understanding the intraday trading meaning, there is another form of trading i.e.Proprietary Trading that you must be aware of.
The term “Proprietary Trading” means trading done by a financial company or a bank using its own money instead of using their clients’ money and earning through commissions.
A proprietary day trader is generally a trader on contract basis who trades shares, futures, options, commodities, currencies, etc. in order to improve the profits of the firm.
Proprietary day trading means that all such orders are squared off within the same day.
How to do Intraday Trading?
The art of intraday trading is quite difficult to master, the techniques of which have been covered under another article.
First of all, an intraday trader needs to determine prices at which he/ she will enter the trade and the target price where an exit from the trade needs to make.
Also, one of the most important things to remember while intraday trading is to decide a stop loss which should be strictly adhered to under all circumstances. This should be done in order to protect oneself against the risk of making huge losses in intraday trading if the market starts moving in an unexpected direction.
An equally important thing to do is to book profits at target price as and when they reach and not fall in the trap of greed.
Intraday Trading Advantages
Now, you have understood the intraday trading meaning. Let’s find out a bit more about this form of trading and know about its pros and cons.
There are many advantages of intraday trading which have been listed below:
1. No Blocking of Capital – Since all the trades are squared off the same day in intraday trading, it does not involve any blocking of the capital. An intraday trader either books profits at target prices or takes losses at the stop loss.
The output of the day trading can be easily evaluated at the end of the day.
2. Benefits of Both Bullish and Bearish Sentiments – A major benefit of intraday trading is that traders can benefit from both kinds of sentiments. Day traders can enter into long as well as short positions according to the trend of the stock movement.
3. Protection Against Unexpected News Causing Huge Gap Ups and Gap Downs – In case of disclosure of some unexpected news after market hours which can cause huge rise or fall in prices of securities, investors can be affected but intraday traders are shielded from such movements as they do not have any open positions at the end of the day.
Intraday Trading Disadvantages
Just like any other thing, intraday trading also has some disadvantages which have been discussed below:
1. High Risks If Market Moves in Unfavourable Direction – Since the intraday trade has to be squared off before the closing of the market each day, sometimes, it can expose the traders to higher risks as compared to investing in stocks.
2. Requires Constant Attention – Another disadvantage of intraday trading is that it requires the constant attention of the trader. Until and unless a trader is dedicated to the stock market entirely for the day, one should not enter into intraday trades.
3. Higher Commissions or Brokerages – Due to frequent trades in intraday trading, brokerage costs become quite high as compared to investments in the stock market.
Intraday trading meaning is easy to understand which is entering and exiting into trades within the same day but it takes a lot of practice to master the art.
It is a double-edged sword and one should be very careful while entering the world of intraday trading.
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