Intraday Trading - Definition and Tips for Beginners

While there are many different ways to generate profits from the stock market, long-term investment and intraday trading are the most popular.

Long-term investors purchase stocks of promising companies and hold them for several months and years before selling. On the other hand, intraday traders or day traders buy or sell stocks and close their position on the same trading day. The introduction of electronic trading and the margin facility offered by brokers have made day trading a popular choice in India.If you are just starting with intraday trading, understanding the basics of how it works is the first step towards becoming a successful trader. The basics of intraday trading for beginners have been simplified below to give you a head start-

When you invest in stocks for the long term, you place the buy order from your trading terminal. Within 2-3 days, the shares you've purchased are transferred from the seller's Demat account to your Demat account. In other words, long-term stock investing involves the transfer of ownership of shares. But intraday trading is different as it does not involve any transfer of shares.For instance, the Indian stock market opens at 9.15 a.m. and closes at 3.30 p.m. on weekdays. An intraday trader would buy and sell the shares on the same trading day between this window of 6 hours and 15 minutes. The trader could hold the position for a few seconds, a few minutes, a couple of hours, or the entire trading day but square off the position before the closing bell.

For intraday trading, you'll need a trading and Demat account. You can choose any of the popular brokers for the same. Once your trading account is ready and you've deposited funds into the account, you can start trading.If you are already a long-term investor with an existing account, it’d be wise to open a new account specifically for intraday trading, as it will simplify account and trade management. As intraday profits are taxed differently than long-term stock investment profits, separate accounts will also make tax management easier.

In order to trade profitably, you'll first have to understand technical and fundamental analysis. Technical analysis is the process of evaluating stocks to identify patterns and price trends that can provide trading opportunities. Charts and technical indicators are used for this analysis. Most leading brokers now offer these tools for intraday trading.With fundamental analysis, traders or investors determine the fair or real market value of a stock based on the financial factors of the company. While it's the long-term investors that commonly use fundamental analysis, intraday traders should at least know the basics as it could help them find excellent trading opportunities.

Apart from buying and then selling, traders can also sell and then buy in intraday trading. Known as short-selling, it allows intraday traders to open a sell position in stocks expected to fall from their current prices. Once the expected target is reached, the trader closes the position by placing a buy order.For instance, the State Bank of India (SBIN) stock is currently trading around Rs.518. A trader who believes that the price of SBIN will fall up to Rs. 510, can sell 100 shares during the market hours by opening a sell position. If the price actually starts falling and hits Rs. 510, the trader can close the position by placing a buy order. The profit on this trade would be Rs. 800 (price difference of Rs. 8 x 100 shares).So, intraday traders can make profits when the price of shares is rising as well as when it is falling.

Stop-loss is a type of advance order that traders can place to square off their positions when the stock price reaches a certain point. As the name suggests, it is the most effective method to prevent further losses. For instance, let us take the same example from above.The trader places an order to short-sell 100 units of SBIN at Rs. 518. But rather than falling, the stock price of SBIN begins to rise. If the trader is not present on the trading terminal, the price might reach Rs. 525 or even Rs. 530 and result in significant losses. To avoid this scenario, the trader can place a stop-loss (SL) order at Rs. 520.So, even if the price of SBIN starts rising, the position will be automatically squared off at Rs. 520 even if the trader is not present at the terminal. The total loss in the trade would be Rs. 200 (price difference of Rs. 2 x100 units). Irrespective of whether you are a beginner or a professional trader, ensure that you always use stop-loss.

Intraday trading is one of the most challenging ways to earn profits from the stock market. It requires significant knowledge and experience with exceptional patience and discipline. Statistics suggest that more than 90% of intraday traders lose money in the stock market. It is no get-rich-quick scheme that you can use for generating enormous profits overnight.Mastering the basics of intraday trading for beginners is the first step before moving on to the more advanced concepts of day trading. Acquire the right knowledge from reputable sources and implement your learnings in a demo account to understand how the stock market and intraday trading works. Many of the brokers in India now offer demo accounts.When you are ready to start trading, ensure that you start small, as it is very easy to end up losing the entire capital in intraday trading. Also, make sure that you only trade in the cash segment and leave FnO (Future and Options) for a later stage. The derivates segment is significantly riskier than the cash segment and should only be traded by experienced traders.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.