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How does intraday trading work?

Before getting into the basics of intraday trading, it is important to understand what intraday trading is. The term intraday means “during the same day”. When a trader purchases and sells stocks listed on a stock exchange on the same trading day, it is known as intraday trading or day trading.

The primary objective behind intraday trading is to realise the profits on the same day. It also minimises trading risks as the funds are not blocked for an extended period.

How does intraday trading work?

Intraday trading is done through online trading platforms that work on a real-time basis. The trader buys and sells the same number of shares of the same company within the trading hours for the day.

While using the online stock trading platform, traders must specify that the transaction is intraday. They can buy or sell stocks listed on the exchange, specifying the quantity and the price.  The position acquired by the trader (buy or sell) must be squared off at the end of the day. This means that if a trader has bought some stocks, they must be sold before trading on that stock exchange ends for the day.

A trader must also know how to sell intraday shares to make profits. If the trader has sold some stocks instead of buying it is called short-selling. In this case, the same number of shares of the same company must be bought before the trading hours end.

Example:  Trader X buys 100 shares of ICICI Bank @ ₹930 at market opening. During the day the stock price rises to ₹960 and the trader squares off the position by selling 100 ICICI Bank shares @ ₹960. This gives him a profit of (960-930)*100= ₹3,000.

Role of margins

Intraday trading enables a person to trade on margins. This means that a trader with limited trading funds in his demat account can also create open trade positions in higher trading lots by borrowing funds from his broker.

However, this leveraged trade comes with a caveat. On one side, where it can amplify the returns by allowing a trader to transact in higher amounts, it could also lead to higher losses in case the stock prices swing adversely. 

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Intraday trading brokerage 

Traders are required to pay intraday brokerage charges to their broker for executing a day trade. Intraday trading brokerage includes:

  • SEBI regulatory charges – 0.0002% of transaction value
  • Securities Transaction Tax (STT) – 0.025% of sell-side intraday transactions
  • Brokerage and GST on brokerage – Differs for each broker
  • Transaction charges – 0.00275% per trade on BSE and 0.00325% per trade on NSE
  • Stamp duty – Varies according to the location

Intraday trading vs delivery trading

Delivery trading is where investors can hold on to securities as long as they want, unlike intraday trading where the position needs to be squared off the same day. If an intraday position is not squared off, it gets converted into delivery trade, with a levy of delivery brokerage.

Also Read: How much tax do you pay on stock market gains?

Benefits of intraday trading

  • Reduces the risk of market downturns- Delivery trading blocks the amount for a considerable period. This opens up the trader to risks that come with significant price changes on the lower side in case the stock market faces a downturn. 
  • Higher profits– Intraday trading can yield higher profits as the trader can take full advantage of the rising stock prices on a particular day by using accurate investment strategies.
  • Lower commission charges- Intraday brokerage is lesser than the brokerage charged by stockbrokers for delivery trading (Generally one-tenth). This is because delivery expenses of security transfer in the investor’s name are not included.
  • Enhanced liquidity- Traders’ money is not blocked for a long period in this kind of trading. Since the purchase and sale of stocks happen on the same day, funds can be used for other financial requirements. 
  • Capital gains through market fluctuations- Intraday trading gives stock traders opportunities to make profits in both bullish and bearish markets, depending upon the trading strategy used.

Also Read: Risk management in stock market

Final word

To make profits in the stock market, traders must have a strong understanding of intraday trading. Thoroughly analysing company charts is crucial for selecting stocks while also considering market volatility.

Unexpected market fluctuations can also lead to losses as the trader cannot hold the stocks. All intraday traders must pay close attention to intraday price movements and time the trades to make profits by using the short-term price fluctuations in the markets. 


Is intraday good for trading?

Intraday can offer great profits, but it has an equal probability of losses. However, intraday trading is a good option for traders looking to make short-term profits and earn every day from the stock market.

Can a beginner do intraday trading?

No rule stops beginners from venturing into intraday trades. However, intraday trading requires high levels of understanding of stocks, prices and the market as a whole. Despite the theory, the real skill comes with practice. So, it is ideal for novice investors to begin with delivery trades and gradually explore the intraday market.

How many intraday trades can I do in a day?

There is no restriction on the number of trades one can do per day. Some traders stop after they square off the first trade if they gain the desired profits. Otherwise, they enter more trades to reach the desired levels of profits.

How do intraday traders make money?

Intraday traders must buy on every dip if the stock price chart is continuously making higher peaks. Whenever the chart makes a lower bottom, you should sell on every bounce back. The intraday trading tip is that the trend is verified if higher peaks are accompanied by higher bottoms.

Can I buy 1 lakh shares in intraday?

Brokers often offer large leverage or margin to intraday traders. You may purchase more shares than your account balance allows thanks to the leverage option. For example, if your broker offers a 10x margin and your account balance is INR 10,000, you may purchase shares for INR 1 lakh.

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