What is the difference between intraday trading & delivery trading?
Intraday trading is buying and selling of stocks on the same day. There is no overnight delivery of stocks. The position is clear by end of the day (EOD).
As there is not overnight position, the perceived idea that market may open against your position is taken care of. But that doesn’t make intraday trading easy to do.
The main intention of intraday trading techniques is to trade in bigger quantities and book the profit(or loss) within the same day.
At the end of the day, whatever profit or loss you made in the day is added or subtracted from your trading account.
Delivery trading means when you take delivery of the stock that you bought for selling later. Once the trading day is over, that stock is marked to be delivered to your demat account.
As this trading involves delivery of shares to your demat account, it is called as delivery trade. For such trades, if the stocks purchased are in equity segment, then money equal to the total value of transaction is deducted from your account.
If it is futures & options trade, then Margin equal to span margin is blocked in your trading account. And then on daily closing price basis, MTM is added or deducted from your trading account.
Advantages of Intraday trading
Less margin requirement:
As there is no delivery of stocks, the trading margin required for intraday trading is quite small too. You can check the margin required for Intraday trading by both Zerodha and Upstox.
As you can see from the links above, the margin required is partial as compared to full margin. The reason is that intraday positions are squared off by 3:15-3:20 before the closing bell of the stock exchange.
No overnight position risk
Indian stock market or any stock market for that matter, rarely opens flat. It always open positive or negative.
Which means anyone with position in market is always exposed to the risk of market opening against his position.
Intraday trading takes care of that by eliminating the overnight position risk.
Disadvantages of intraday trading
It’s not all rosy with intraday trading. There are several disadvantages of intraday trading.
It is quite normal for stocks to move up and down in the trading day. With Indian stock market at all time high, the range of these movements has increased too. Thus making it quite volatile.
More leverage, more risk
With low margin comes the ability to trade in higher quantity. Which means more loss of money when stop losses are hit.
No trading strategy is 100% right, stop losses getting hit are parts and parcels of trading system.
But with increased leverage, the loss per trade also increases.
In intraday trading you need to exit by end of the day. Which means even if you are holding a position which is going in your direction, you need to exit it. Thus riding the trend to the end is not an option.
Is Intraday trading profitable?
From my experience of over 11 years on stock market, I can say one thing, it depends on the trading style and personality of the trader.
And same is true for even swing and medium term trading. Overall trading in stock market to make money depends on these two factors only.
I have seen traders making consistent money with intraday trading following simple strategies. Then I have seen swing traders making consistent money by following simple methods.
So, if you are a trader with focus and quick action required for intraday trading, you can make money. But remember it will be small as compared to money from several longer duration trading strategies.
The reason is that you may be forced to exit early due to intraday movements as compared to carrying your positions overnight.
Best idea is to try out your strategies on paper trading or start with small amount before making it your main trading style.
How to select stocks for intraday trading
- Stock of the day: These are news based stock picks. Some important news is expected (results announcements, management announcements, stocks being effected by some Govt. policy announcement etc.) related to these results, and hence their prices are expected to move significantly more than other stocks.
- Pre selected Stock list: If you have developed a intraday trading strategy, then there are high chances that it is applicable and tested on certain stocks. Most of successful intraday traders, trade in selected few stocks only.
- Stock at significant technical points: This strategy is based on scanning stocks on regular basis and trading in stocks who are at important technical analysis based juncture, like breaking out of flag pattern, trading at resistance levels etc.
Always choose stocks with high liquidity. It will help you to enter and exit the stock easily as compared to stocks with less volume.
Important: Once you have selected a strategy, don’t jump to other strategy based on some news or tip. No strategy is 100% foolproof, not even long term investments. It is always better to stay with what works for you. And always manage risk.
Suitable time frame to chose for intraday trading
What I have seen is that only an algorithmic trading style works well on anything less than 5 min time frame in intraday trading.
The sweet spot is 15 min chart. Though 5 min chart is good option too.
Time frame bigger than makes you loose the trading opportunities and less than 5 min has too much volatility and noise.
Intraday trading is good option for people who are free to sit in front of trading terminal to trade, have requisite focus and alertness to enter and exit positions quick.
It is not recommended for those who are trading on the side of doing a regular job or some other work.
Before jumping into intraday trading, you will like to read about:
- How to trade intraday profitably
- Intraday trading strategies – 2019
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