What is Intraday Trading? Key Concepts, Advantages, and How It Works

Intraday trading is a popular method in the stock market where traders buy and sell securities within the same trading day. Unlike long-term investments, intraday traders seek to capitalise on short-term price movements, closing all positions before the market closes to avoid overnight risks.

This article explains what intraday trading is, how it works, the critical concepts every trader should understand, the benefits it offers, and the risks involved. By the end, readers will have a well-rounded understanding of intraday trading and the factors to consider before engaging in it.

Intraday trading refers to the buying and selling of stocks or other financial instruments within the same trading day. Positions are opened and closed during market hours, and no shares are held overnight. This style contrasts with delivery or positional trading, where shares are held for longer periods.

The goal in intraday trading is to profit from small price fluctuations in highly liquid stocks, commodities, or currencies. Traders rely on speed, analysis, and market understanding to execute multiple trades daily.

To start intraday trading, an investor needs a trading and Demat account with a broker that offers intraday facilities. Here is how the process unfolds:

• Order Placement: Traders place buy or sell orders through trading platforms during market hours.
  

• Leverage/Margin: Brokers provide margin trading facilities, allowing traders to take larger positions than their actual capital.
  

• Price Movements: Profits are made by exploiting small price changes within the day.
  

• Square Off: Open positions must be squared off (closed) before the market closes to avoid delivery.
  

• Settlement: Since shares aren’t held overnight, settlement happens on the same day without transfer to Demat accounts.
  

This rapid trading cycle demands constant monitoring and quick decisions.

The following concepts are central to intraday trading:

Leverage and Margin

Leverage allows traders to amplify their buying power by borrowing funds from brokers. The margin is the portion of the trade value the trader must deposit.

• Example: With 10% margin, a trader can buy shares worth ₹1,00,000 by paying only ₹10,000.
  

While leverage magnifies profits, it equally increases potential losses.

Stop Loss

A stop-loss order is a preset price level where a losing trade is automatically closed to limit losses.

• Example: If a stock is bought at ₹100, a stop loss at ₹95 closes the position if the price falls to ₹95.
  

Stop losses help manage risk in volatile markets.

Square Off

Square off means closing an open position within the same trading day, which is mandatory for intraday trades.

Failing to square off may result in automatic closing by brokers or conversion into delivery trades with additional charges.

Volatility

Volatility refers to the degree of price movement of a security within the day. Higher volatility creates opportunities for intraday profits but also raises risks.

Liquidity

Liquidity indicates how easily a stock can be bought or sold without impacting its price significantly. Liquid stocks are preferred for intraday trading to ensure smooth entry and exit.

Bid-Ask Spread

The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask).

Narrow spreads benefit intraday traders by reducing transaction costs.

Intraday trading involves buying and selling stocks within the same trading day, aiming to profit from short-term price movements. To get started:

• Open a Trading and Demat Account with a registered broker.
  

• Choose Liquid and Volatile Stocks that show movement during the day.
  

• Set Entry and Exit Targets before placing your trade.
  

• Use Stop-Loss Orders to manage risk and limit potential losses.
  

• Monitor Market Trends through technical indicators and real-time data.
  

• Square Off Positions before market close to avoid delivery.

Intraday trading offers several potential benefits:

• Quick Profits: Traders can book profits within hours, capitalising on short-term price movements.
  

• No Overnight Risk: Positions are closed before market hours end, avoiding exposure to overnight news or events.
  

• Lower Capital Requirement: With leverage, traders can operate with smaller capital.
  

• Flexible Trading: Opportunities exist in both rising and falling markets through buying and short selling.
  

These features make intraday trading attractive for active traders seeking rapid returns.

Intraday trading is not without risks:

• High Volatility: Sudden price swings can lead to losses if trades move unfavourably.
  

• Emotional Stress: Rapid decision-making and market monitoring can cause psychological pressure.
  

• Costs: Brokerage fees, taxes, and other transaction costs accumulate due to high trading frequency.
  

• Leverage Risk: While leverage boosts potential gains, it can lead to amplified losses exceeding invested capital.
  

Understanding these risks is critical before attempting intraday trading.

The Securities and Exchange Board of India (SEBI) regulates intraday trading activities to protect investors:

• Margin Requirements: SEBI mandates minimum margins to control excessive risk-taking.
  

• Circuit Breakers: Exchanges halt trading temporarily if prices move beyond set limits to prevent panic selling.
  

• Broker Registration: Intraday trading must be conducted through SEBI-registered brokers to ensure legitimacy.
  

• Surveillance: Exchanges monitor for unfair trading practices like price manipulation or insider trading.
  

Adhering to regulations helps maintain market fairness and protects traders.

Successful intraday trading often requires:

• Trading Platforms: Real-time order placement, charts, and analytics.
  

• Technical Analysis Tools: Indicators like moving averages, RSI, MACD help identify trends and entry/exit points.
  

• Market News Feeds: Timely access to market-moving information.
  

• Educational Content: Learning resources to understand market behaviour and strategies.
  

Using these tools aids informed decision-making.

Intraday trading involves buying and selling securities within the same day to exploit short-term price movements. It offers the potential for quick profits without overnight risks, made possible through leverage and liquidity.

However, the fast-paced nature of intraday trading entails significant risks including volatility, high costs, and emotional stress. Regulatory frameworks and risk management tools play vital roles in protecting traders.

For investors considering intraday trading, a clear grasp of the underlying concepts and disciplined strategies is essential to navigate the complexities and safeguard capital.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.

• Securities and Exchange Board of India (SEBI)
  

• National Stock Exchange of India (NSE)
  

• Bombay Stock Exchange (BSE)
  

• Investopedia - Intraday Trading
  

• Zerodha Varsity - Intraday Trading
  

• Upstox - What is Intraday Trading?