Sidhavelayutham Mohan is the founder & CEO of Alice Blue, one of the leading online stock broking firms in India. Born in a farming family, he started his entrepreneurial journey in a small southern town of Erode in Tamil Nadu. He holds an MBF (Management of Business Finance) from the Indian Finance Institute and a Master’s Degree from the IIM Bangalore, specialising in Management Program for Entrepreneurs and Family Businesses. As the CEO, Sidhu oversees the operations, new product development with special focus on risk management initiatives. With expertise in analytics and strategic planning, he leads a team of experienced professionals in capital markets, asset management and associated financial services.
In the specialized realm of the Stock Market, Intraday Trading is a heavily debated topic. While there are those who claim enormous profits, the majority of people see it as extremely risky.
But before jumping to conclusions, let’s understand what intraday trading actually means.
Intraday trading, also known as day trading, is the process of buying and selling financial instruments on the same day, i.e., the purchase and sale of a financial instrument must occur in a single day, only during market hours.
Since intraday trading has fixed timings, if you do not close your positions within the given timeframe, the broker will close them for you. In general, the timings are between 9.15 AM to 3.30 PM for the Equity Segment. In the Commodity Segment, the auto square-off timing for MIS trading is 11.20 pm and 11.48 pm, whereas for BO & CO is 11.20 pm and 11:50 pm, respectively. The duration of intraday trading varies slightly between brokers.
Because intraday trading is so much faster than regular investing, an Intraday Trader must be well informed about when to enter, when to exit, and when to simply observe. To do so, one must first learn about the stock market and how to analyze stocks. So, before you begin earning, you should do some learning. And there are numerous platforms that educate investors about the stock market, including Alice Blue’s Trade School and ANT IQ blogs.
Normally Intraday Trading is chargeable, and often a trader has to perform multiple transactions in a day to walk out with profits. This is where discount brokers grew as they brought a flat rate, but if you look closely, even in discount brokerage, there are few brokers that are charging considerably less, which can be as low as ₹15/order.
While it’s true that there’s no way to become an expert in Intraday Trading overnight, there are some points that can be remembered to help you become effective.
Knowledge: You must be completely knowledgeable about the stock you are trading. A small change in stock prices can result in huge profits or losses.
Strategy: You need tried-and-true strategies backed by solid research to help you turn a profit and cut your losses when the market goes against you. Be patient and wait for your strategy to signal when to enter and exit the market. You should not rush into trades based on your emotions if your strategy is not providing signals.
Discipline: Mastering intraday trading calls for the self-discipline of a soldier. If you enter a trade in accordance with your strategy and it succeeds in reaching its goal, you should have the self-control to cash out immediately. You should not let greed cause you to stay in a trade in the hopes of making more money.
Likewise, if your stop loss is hit due to a strategy that isn’t working, you should exit the trade and move on to the next opportunity rather than hoping that the stock will recover.
Patience: Sometimes, the stock market is trending upwards, sometimes downwards, and sometimes there is no trend at all. A stock in a no-trend zone, for instance, would be a poor choice to trade if your strategy requires the stock to be in an uptrend. One must be patient and wait for the trend to reverse in such situations.
Trading Tips: You may find thousands of “experts” offering advice on various online platforms, and they all seem credible until you start losing money as a result of following their advice. Therefore, if you want to be a successful intraday trader, you can’t rely on trading tips alone; you need a solid strategy and an in-depth familiarity with the stock markets.
Constant Monitoring: To be a successful intraday trader, you must monitor the markets at all times. If your job requires you to be active throughout the day, you should avoid intraday trading.
Those were some hard-hitting facts, but everything has its black and white aspects. So moving on further, let’s look at the advantages and risks involved in it.
High Leverage: Intraday Trading comes with a concept of leverage and margin. You can buy stocks up to 5X of the capital you have. That sounds amazing, but if not used properly, it may attract huge losses as well.
Suppose You have ₹10,000. You buy 50 shares at ₹1,000 each using 5X leverage. The shares cost ₹50,000.
If the stock price rises to ₹1,050, the total investment value will be ₹52,500 (50 shares), i.e., ₹2,500 profit (₹52,500-₹50,000), that’s 25% profit (₹10,000 + ₹2,500).
If the stock falls to ₹950, now your investment is worth ₹47,500 (₹950 x 50 shares). You’ll lose ₹2,500 (₹50,000-₹47,500), or 25% of your capital.
Psychological Risk: 95% of intraday traders lose money because of psychological factors. As stated above, you need to have nerves of steel, a lot of patience, and strong discipline. When Intraday Trading is done right, it can be most rewarding.
Overnight Positions: Because you close your positions within a day, you are not exposed to the risks of market events or tragedies that occur during the night, which have a direct impact on stock movement the following day.
Apart from the advantages and risks of intraday trading, there’s one thing that needs to be known by all the traders is the taxes on your gains. The profits you make from intraday trading are taxed at 15% under Short Term Capital Gains or STCG.
There’s a saying in the market that goes, “Risks and Returns are interrelated; the higher the risk, the higher the return.” One must understand all the risks before entering a trade; only then can they justify the outcomes. But with knowledge, you might be able to reduce your losses significantly. Thanks to the internet, the information you might need to learn about the stock market is all available on the websites.