What is intraday equity trading? How does it work and is it the right fit for your profile?

Oct 11, 2019 | 1 month ago | Read Time: 3 minutes | By iKnowledge Team

Suppose you decide to buy 100 shares of Company X at Rs 100 at about 9.15 a.m. in the morning. You know that Company X will announce its quarterly results at about 2 pm in the afternoon and the forecast is for a 20 percent increase year-on-year in its net profit. You are betting that the stock will rise by at least 5%, once the results are declared or even before that.

By around 1.30 pm the stock of X has risen more than 6 percent and you decide that this is good appreciation for you and sell the stock at Rs.106. You’ve made a profit of Rs 600 on your original investment (ignoring brokerage and transaction taxes) Congratulations! You are a day trader.

What is Intra-Day Trading in Stocks?

Intra-Day trading essentially involves betting on the movement of prices throughout the day and then taking positions on it depending on the way you expect it to move.

Professional day traders, that is those who do it for a living, do continuous trades throughout the trading day taking advantage of minute changes in prices, either on the same exchange, or on different exchanges. The volume of trades (numbers of shares traded) is huge if they want to make sizeable profits. This means that that they need sufficient capital, which they can afford to lose. Professional traders can be attached to large institutions or they can be individuals, operating on their own.

Some traders do only a few trades during the day and they wait for a significant movement in prices before they square out their positions. A position is squared out when there is a purchase and a sale transaction on a stock and there is no outstanding at the end of the day.

How does Day Trading Work?

There are trading workstations on which traders execute their transactions. Brokerages provide workstation facilities to traders. Individual traders who want to do it on their own need a fast internet connection and a software that will facilitate such trades as well as provide them with real-time price feeds.

How do traders decide where to invest? Some professional traders usually rely on technical analysis to predict movement in stocks, based on which they do their trades. There is another type of trader who does arbitrage trading, that is they take advantage of price differentials (differences in prices of shares) in different exchanges, then buy on one, and sell on the other. For instance, shares of Company X can be trading at Rs 100 on one stock exchange and trading at Rs 105 at the same time on another exchange; a trader will buy on one exchange and sell on the other.

Apart from technicals, traders can also expect price movements in a stock based on news about the company. Remember, the opening example of the share price of Company X moving up due to expectation of good results? Apart from results, share prices can also move up on other news such as fund raising, mergers and takeovers, financial problems, tax raid rumours, etc.

This means that traders need to keep tabs on what is happening in the markets and companies in whose shares they want to trade. That brings us to the next pertinent topic.

Is It the Right Fit for Your Profile?

Before we answer that question, let us look at what the requirements are to be a day trader.

  • Good knowledge of the markets and how they work: This means you need to know about the functioning of the markets, why it behaves the way it does, the participants, the costs involved, etc. Only then, you can get an idea of the logic behind the stock price movements.
  • Time: You have to invest a lot of time monitoring price movements, whether you are a trader doing hundreds of trades or a casual trader with only one or two trades in a day.
  • Sufficient amount of funds: As we said earlier, traders need good amounts of funds with them because they are hoping to make money from very small changes in prices and you need to buy large quantities of shares to make significant profits. This capital should also be what you do not require for your living expenses, because day trading, often, can result in losses if the stock prices do not move the way you expect them to. Therefore, when you are investing money in day trading, take this factor into account.
  • Planning: As a trader, you need to decide what strategy you intend to pursue; whether you will trade based on technicals, on news, arbitrage, on privileged information and so on. You must be consistent in your strategies. You must know how to invest correctly.

Now that you know what being a day trader means, you can decide whether it is the right fit for you and you have the right credentials to be a day trader. In fact, to all the above characteristics, I can also add nerves and strength of character. Day traders need to keep their wits about them and should not let disappointments and losses affect their thinking.

At the end of the day, choose the investment option that works with your life stage and risk profile.  To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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