Beginners guide to intraday trading
coffeekai via Getty Images

Did you know that only 2-3% of India's population is invested in the stock market? This is a serious financial opportunity missed as the Indian stock market has created a lot of wealth for people who have invested in it.

There are many factors that influence people into shying away from the stock market, but the most evident one seems to be lack of in-depth knowledge of how it functions.

Here is a beginners guide to 'intraday trading' to help you gather knowledge of the stock market in the event that you are considering trading stocks.

Intraday trading, also called day trading, is the buying and selling of stocks and other financial instruments within the same day. In other words, intraday trading means all positions are squared-off before the market closes and there is no change in ownership of shares as a result of the trades.

Squaring off is a trading style used by investors/traders mostly in day trading, in which a trader buys or sells a particular quantity of an asset (mostly stocks) and later in the day reverses the transaction, in the hope of earning a profit (price difference net of broker charges and tax)

Until recently, people perceived day trading to be the domain of financial firms and professional traders. But this has changed today, thanks to the popularity of electronic trading and margin trading.

Now, it is very easy to start day trading.

Difference between intraday trading and regular trading

There's only one difference between a regular trade and intraday trade. It lies in taking the delivery of the stocks.

In intraday trading, you square-off your positions the same day. So, your sell order offsets your buy order. This way, there is no transfer of ownership of shares. A regular trade gets settled over a span of days if not longer. So, you get delivery of the shares you bought while the shares you sold move out of your demat account .

Who is intraday trading suitable for?

Those who can take risks, and have enough time to follow the market closely and time their trades.

Risks

Intraday trading promises high returns and thus may sound very attractive. But it also carries a higher risk compared to the delivery segment. So if you have a day job that requires your full attention for most of the trading hours, you may want to avoid intraday trading.

It is crucial that you watch the market and time your trades to perfection. Secondly, you need a good understanding of and time to perform technical analysis on daily charts to make the right decisions.

How to place place intraday trades?

You need to trade in the intraday segment using the right broker, one who offers you with research support as well as technical support. Having the right tools is crucial to maximise intraday trades. Given the high frequency of transactions, it is important that you choose an account with low brokerage per transaction and speedy execution.