How to Do Intraday Trading in India?

Starting as a beginner in the stock market can get overwhelming with so many technicalities involved. Intraday trading may look appealing to many users because of financial gains they can bring to an individual. 

However, what you need to understand is that it can also lead to high losses if done without adhering to rules of the market. Therefore, as a beginner, it is always advisable to gain a basic understanding of intraday trading before delving straight into it.

What is Intraday Trading?

Any trade position that an individual squares off on the same day within market hours is called intraday trading. Simply put, when buying and selling (or vice versa) of a stock takes place on the same trading day, it is intraday trading. It is because of this attribute that it is also referred to as day trading. 

If implemented correctly, intraday trading can provide you good profits in a very short period.

The price of every  share fluctuates during the day. Let us say that shares of X are trading at ₹200 at the moment. A trader T bought 10 units of X for the same price. Now, since he thinks the share price is likely to move up (which is why they bought it in the first place), he will wait for the momentum, and once his target price, say ₹220, is triggered, he will sell off the shares. All the fluctuation can happen within a few hours or even less, and T can end their day with a profit of ₹200.

How is Intraday Trading Different from Regular Trading?

The key differentiator between intraday trading and regular trading is the actual delivery of the stocks that you buy. In intraday trading, there is no actual transfer in the ownership of the stocks bought or sold. So those stocks do not get delivered in the demat account of the trader. 

Irrespective of any profits or losses made by the trader, they are required to compulsorily square off their position before the end of the day. Whereas in regular trading, the stocks bought are delivered in the demat account of the trader. This means there is an actual transfer of the ownership of the stocks traded. The timing for the said transfer shall depend upon the delivery time of the shares. 

How is Intraday Trading Different from Regular Trading?

In reality, there is no textbook process for how to go ahead with intraday trading. Different traders implement different strategies depending on their skill set and understanding of the market. 

The only thing to remember is to choose the intraday option before entering the trade. Failing which, your trade may not automatically square off before the closing. However, you can manually square off during the day if you feel the need to exit., 

However, there are some crucial features of Intraday trading that a trader must be aware of in advance:

• Entry and Exit Points

The entry point is the price level at which a trader buys a particular stock. It is usually a level that the trader determines based on their research and study of the market patterns. 

Similarly, when a trader squares off his/her position, it is called exiting a trade. It is usually the target price or stop loss at which they are likely to sell off their position. However, an exit point is not always the same as the target price or the stop loss price. The reason being that the market may not always perform based on the trader’s predictions and he/she may have to modify the exit accordingly.

• Stop Loss

Stop loss is the maximum loss a trader is willing to bear on a particular trade. So if you set a stop loss on your trade, and it gets triggered, the trade gets squared off on its own. This also prevents a trader from scrutinising the screen like a hawk and waiting for it to hit the stop price.

• Liquid Stocks

Intraday trades need to be squared off before the market closes for that day. So for your stock to be sold, there has to be someone willing to buy that stock. Hence, choosing liquid stocks over mid-cap or small-cap stocks is crucial. 

Liquid stocks are traded in larger quantities when compared to mid-cap or small-cap stocks. It increases the chance of finding a buyer when squaring off an open position. You can better identify liquid stocks through some research and study of your target companies.

Key Factors to Keep in Mind Before Starting Intraday Trading

Intraday trading, if not done carefully, can lead to high monetary losses. So if you are starting as a beginner, be mindful of the following points:

• Intraday trading is quick money, but it  also carries risk. So before entering any trade, make sure to do your homework in advance. Do not stake your money based on a fluke.
• Based on your study, decide on an entry point and an exit point in advance. The next step is to make sure you stick to it.
• Once your target price gets triggered, exit. Do not get greedy because the trend can also reverse anytime.
• Until you get a hang of the way the market operates, trade only with the amount that you can afford to lose.
• Always operate with a stop loss and keep a prudent risk appetite.
• Know the tax implications and charges attached to every trade because they work differently with different types of trades. 

Final Word

Intraday trading is comparatively a more complicated aspect of the market than regular trading and investing. It might also not be suitable for every person. It requires a different skill set and also requires you to be involved full time. Therefore, make sure you have done your homework, you understand the market and are ready to devote the time it needs before taking up intraday trading. 

Since the risk margin here is on the higher end, you might want to make sure it goes in line with your financial objectives first. If you feel that is not the best suitable method, you should explore other methods  of investing/trading that match your financial goals and risk appetite.

Frequently Asked Questions