Intraday trading is all about taking a trade on a single day and squaring it off before the share market closes. Intraday trading can be buying first and then selling the stock to close the transaction or it can be selling the stock first and then buying it again to close the trade. The whole purpose of intraday trading is to take advantage of the volatility in the index i.e. Nifty and Sensex.
Profit in intraday trading is made by purchasing stocks at a lower price and selling them at a higher price or selling stock at a higher price and purchasing them again at lower price. Therefore, the basics of intraday trading are very simple and easy to follow. In this article, you will learn about the pros and cons of intraday trading that will help you in making higher returns in the stock market.
Let us first learn about the benefits or pros of intraday trading.
Benefits or Pros of Intraday Trading
- The amount of capital required for intraday trading is very less as compared to delivery based trading or investing in the stocks.
- Since you can take bigger trading positions with intraday trading, higher profits can be made on daily basis.
- The sky is the limit to make returns at the time of volatility.
- Brokerage commission for intraday trading is very low. It is almost 1/10th of what is charged for the delivery of shares. Therefore, with intraday trading you can trade for more shares and pay lesser charges which is not possible in positional or delivery based trading.
- Intraday traders can earn profits in any type of market. When the market is in the bull phase, they can take long trades and when the market is in a bear phase, they can take short trades.
- Intraday trading gives immense opportunity to learn the stock market in a better way. You can try out various trading strategies, use chart patterns, use technical analysis, etc. to find out which technique is better for you and can earn you higher profits.
- With intraday trading, you do not carry any overnight risk. You close your trading position on the same day and any good or bad news during the non-trading hours does not affect you. Thus, intraday trading protects you from overnight crises or tragedies.
After learning about the benefits of intraday trading, let us now learn about some of the disadvantages of intraday trading.
Cons or Disadvantages of Intraday Trading
- Intraday trading gives you the opportunity to earn high returns but the risk level is also very high. Therefore, you must use only a limited part of your capital for intraday trading. It is advisable to assess your risk tolerance before putting in your hard earned money.
- Intraday trading is not advisable to those people who do not have any knowledge of the stock market, do not understand stock market strategies, and cannot handle the stress levels. You might get trapped by indulging yourself in intraday trading without any knowledge and end up losing major part of your capital.
- You need to focus continuously on the stock price. Without constant attention, you cannot become a successful intraday trader.
The above mentioned are some of the cons of intraday trading. To help you with intraday trading, we list down some of the intraday tips that you must follow to make profitable trades on a consistent basis.
- It is always advisable to trade in stocks that are highly liquid in nature. To put in simple words, you must trade in stocks that have higher trading volumes.
- It is advisable to put a stop loss in place during intraday trading. Stop loss saves you from excessive losses and keeps you in the game. It also protects your capital from eroding in just few wrong trades.
- You must always trade with the market trend. Taking positions against the market trend can result in losses.
- You must ensure that you book profits timely. Never get greedy during intraday trading because the profits can turn into losses in no time. Hence, profit booking in a timely manner is always advisable.
- Emotions have no place in the stock market and you must avoid taking or holding intraday trades out of emotions.
The above mentioned are few of the intraday tips. You can become a successful intraday trader with experience and that will come only when you start by taking small trades initially. Learning technical analysis and chart reading are important components of intraday trading. If you want to learn more about intraday trading and take a step towards becoming a successful intraday trader, you can get in touch with Kotak Securities.
Kotak Securities is one of the most reputed broking firms in India. Their team of expert translators & interpreters assists you with intraday trading by giving regular research reports and intraday trading tips.