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 important 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 is a popular strategy for traders aiming to profit from short-term market movements within a single trading day. It involves buying and selling financial instruments such as stocks, commodities, or currencies before the market closes.

In this form of trading, positions are squared off by the end of the session, and no holdings are carried overnight. The objective is to capture small price fluctuations in highly liquid assets, often through multiple quick trades during market hours.

Intraday trading demands quick decision-making, disciplined execution, and thorough market analysis to make the most of short-term price changes.

Intraday trading involves the rapid buying and selling of stocks within the same trading day, requiring both a trading account and a Demat account linked with a broker offering intraday facilities. Traders focus on capturing short-term price movements rather than long-term gains.

Here’s how the process works:

• Order Placement: Traders place buy and sell orders through online platforms during market hours.
  

• Leverage or Margin: Brokers often provide margin facilities, allowing traders to take larger positions with limited capital.
  

• Tracking Price Movements: Profits are made by capitalising on small, frequent price fluctuations in liquid stocks.
  

• Square Off: All open positions must be closed before the market ends to avoid delivery of shares.
  

• Settlement: Since trades are completed within the day, settlements occur the same day without transferring shares to a Demat account.

Intraday trading requires constant monitoring, quick decision-making, and effective use of market tools to take advantage of short-term price trends.

In intraday trading, understanding certain fundamental concepts is important for managing trades efficiently and executing strategies with precision. These concepts define how trades are placed, managed, and closed within a single market session.

1. Leverage and Margin

Leverage enables traders to increase their market exposure by borrowing funds from brokers, while margin is the amount a trader must deposit to open a position.
Example: With a 10% margin, a trader can buy shares worth ₹1,00,000 by paying only ₹10,000. Leverage magnifies both potential profits and losses.

2. Stop Loss

A stop-loss order is a pre-set level at which a trade automatically closes to prevent further losses.
Example: If a stock is bought at ₹100, setting a stop loss at ₹95 closes the position when the price hits ₹95.

3. Square Off

Square-off refers to closing all open intraday positions before market close. If traders fail to do so, brokers automatically square off positions or convert them into delivery trades, often with additional charges.

4. Volatility

Volatility measures the degree of price fluctuation during the trading day. While higher volatility can create profit opportunities, it also increases exposure to risk.

5. Liquidity

Liquidity reflects how easily a stock can be bought or sold without major price changes. Highly liquid stocks allow faster entry and exit, making them suitable for intraday trading.

6. Bid–Ask Spread

The bid–ask spread is the gap between the buyer’s bid price and the seller’s ask price. Narrow spreads help reduce transaction costs and improve trade efficiency.

These key concepts form the foundation of intraday trading and help traders navigate fast-moving markets with greater clarity and control.

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:

• Potential for Short-term Gains: Traders aim to capitalise on price movements within the day.

• 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 commonly used by active traders seeking short-term gains.

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.

Intraday trading involves quick decisions, and traders rely on a range of tools and platforms to track price movements, analyse trends, and execute trades efficiently.

Here are some key tools commonly used by intraday traders:

• Trading Platforms: Provide real-time market data, order execution, charts, and portfolio tracking features.
  

• Technical Analysis Tools: Include indicators like Moving Averages, Relative Strength Index (RSI), and MACD to identify trends and potential entry or exit points.
  

• Market News Feeds: Offer live updates on economic events, corporate announcements, and global developments that influence short-term price movements.
  

• Educational Resources: Include articles, webinars, and tutorials that help traders understand market behaviour and refine trading strategies.

These tools enable traders to monitor the market closely, react swiftly to changes, and make informed intraday trading decisions.

Intraday trading involves buying and selling securities within the same day to exploit short-term price movements. It offers the potential for short-term gains 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.