Frequently Asked Questions on Intraday Trading
Closing an investment position before the market closes on the same trading day is called intraday trading. Day traders try to take advantage of the regular price fluctuations of a security and earn profits by opening trade positions according to the trend. Intraday trades involve high risks and require you to have a good amount of experience trading in the market. You do not get the delivery of the shares in day trading and hence, get to save on the delivery charges imposed by brokers.
Day trading involves various investment techniques and multiple aspects. The following are some things to remember in day trading for new investors.
- Try and avoid trading in highly volatile markets. It is better to invest in markets whose prices movements are predictable.
- Decide your risk to reward ratio before placing the order and stick to it throughout the duration of the trade.
- Since intraday trading tends to be risky, you should always trade intraday with a stop loss to minimise your losses.
- Conduct technical and fundamental analysis of securities before trading them.
- Do not forget to decide the entry and exit levels of trades before placing your orders.
No, one of the most critical intraday trading rules is to never blindly trust the free intraday tips doled out by social media websites, television anchors, and other unknown sources. Instead, you must always do your own research and refer to trading charts, patterns, and trends before making an investment decision. Remember, in most cases, the free intraday trading tips shared over various media channels are usually done to create a price movement in a particular stock. You should also be careful to implement the free intraday trading strategies available on the internet. Always do your research and test the investment plan before deploying it in the market using your hard-earned money.
The following are the basic intraday trading tips for beginners.
- Pick the right market: Always pick the market you understand—whether equity, commodity or currency.
- Pick right security: Choose a stock or a commodity which has high liquidity. You also need to be aware of any news triggers for the selected security to make a profitable trade.
- Fix entry/exit price beforehand: Before you process your order, decide at what price you want to enter the trade. This will help you reduce mistakes. Similarly, always exit trade once price reaches the target.
- Have a stop loss: If the price is not moving according to your prediction, having a stop loss cuts your losses before it becomes too big. Always exit your trade one stop loss is breached.
- Get the timing right: Pick a suitable time to trade. Early in the day and in the last hour, volatility is very high. For beginners, trading around the noon can be best time to trade. Diversify: Never put all eggs in a single basket. Trade with a small portion of your capital or bet on more than one security. Then, in case one trade goes bad, you won't lose your entire capital.
- Learn to read charts: Most trading is done after doing a technical analysis of a security. It is better to have a basic understanding of common charts and patterns to make a profitable trade.
There are many interesting things to know about stock market in India, like:
- Most shares in India are traded on the Bombay Stock Exchange and the National Stock Exchange.
- The BSE is Asia's fastest online share trading platform and boasts the most number of companies listed on the exchange.
- The Sensex is the benchmark index of the BSE and comprises the top 30 stocks in terms of market capitalisation.
- The Nifty50 is the benchmark index of the NSE and comprises the top 50 stocks in terms of free-float market capitalisation.
- There are several other stock exchanges in India, and most of them are highly liquid, with millions of participants. The most popular are BSE and National Stock Exchange, both based in Mumbai.
Intraday trade means buying and selling a security on the same day, which results in no change in stocks you hold at the end of the day. In delivery trades, you take delivery or sell your shares which may change the composition of your portfolio. For example, suppose Reliance Industries (RIL) declared its December quarter earnings yesterday, and reported massive growth across business verticals. This usually means RIL share prices will rise in subsequent trading. You want to take benefit of this price movement and place a buy order in the morning. You have two options here: One, you place an intraday buy order and book profit by selling them before the market close. In this trade, no shares are credited to your DEMAT account. Option two is buy shares for more than one day, that is, take delivery of shares to benefit from multiple days or months of price movement. Shares you buy will be credited top your DEMAT account.
Understanding how to trade intraday is relatively easy. All you need is a trading account with a SEBI-recognised broker; in this case - m.Stock and ensure you have enough funds to finance your trade. Just log in to your trading account, choose the security you wish to day trade. Select your investment position, whether you want to buy or sell the security and place your order. Remember to square off your position before the market closes, or your position will have to be closed on your behalf.
A stock market is a marketplace to buy and sell various financial instruments such as equities, bonds, and derivatives. You can only make transactions in the stock market through brokers. It is crucial to know how stock market works before you begin your investment journey.
The price of a security listed on a stock exchange (BSE or NSE) is decided by its demand and supply in the market. The broker places orders on the stock exchange on your behalf. Further, the stock exchange looks for buyers and sellers at a price pre-defined by you. Once the exchange finds the right match, your order is executed. The security acquired or sold by you is stored in a DEMAT account. It takes t+2 days for the security to reach your DEMAT account.
There are many benefits of stock investment. Such as,
- Investing in stocks can help you get inflation-adjusted returns higher than those offered by traditional cash deposits and bank FDs (Fixed Deposits).
- Another advantage of stock investments is that you can earn regular dividend income by including the equities of various companies in your investment portfolio. As such, you can generate passive income.
- Shares also provide better liquidity when compared to other traditional investment options.
- The stock market allows you to be in complete control of your investments. It provides you with complete freedom to build your portfolio and generate returns.
The stock market is a place that allows buyers and sellers of a particular security to negotiate a price and trade money for the shares of the said asset. Here are a few vital share market basics for beginners.
- Create a diversified investment portfolio. Putting your entire capital in one stock or sector is risky. For example, if you have invested your entire portfolio in a single metal stock, in case of any bad news for the sector or the company, you may be staring at a massive loss. It is always wise to diversify across sectors and even assets like gold, real estate or bank deposits. Never put your entire capital in equities.
- Do both technical and fundamental analysis before making an investment decision. You should only invest after thoroughly researching about the security and its past trends.
- Only invest the money that you can afford to lose. Avoid investing in the share market using borrowed funds.
- Minimise your losses using the stop loss facility. Do not hold positions and hope for a reversal. Set the stop loss limit and reduce your potential for losses.