What is a Trading Account?
As the name suggests, intraday trading is a trade that is initiated and squared
off on the same day. To understand intraday trading, let us go back to the idea
of rolling settlements that was introduced in India in 2001. Formerly, the BSE had
a system called the Badla (carry forward) where trades could be squared within a
week and could still be carried forward beyond that. In 2001, SEBI introduced the
system of rolling system wherein all trades not reversed on the same day will result
in delivery on T+2 day. Rolling settlements actually gave rise to intraday trading!
What is so special about intraday trading?
Intraday traders typically operate on minor mispricing in stocks. Therefore intraday
traders actually provide liquidity in the markets and reduce the risk. By continuously
trading intraday, these traders also provide two-way quotes in many stocks. The
brokerage rates and the statutory charges like STT are much lower on intraday trades
compared to delivery trades. This actually reduces the cost of intraday trading.
When you buy equities for delivery, you are required to put up 100% of the total
cost upfront. On the contrary, if you designate your trade as an intraday trade,
then the margin is just a portion of the full cost. These are classified as MIS
(Margin for Intraday Square-off) trades and the broker’s RMS will automatically
close out open positions in the last half-hour of trade. Since these are intraday,
there is no question of demat credit or debit.
Precautions in intraday trading:
There are a few basic precautions you need to take when you trade intraday…
1. Since you are getting into intraday trades by paying a margin, always trade intraday
only with strict stop losses. This will avoid huge losses due to sharp volatility
in stock prices.
2. As an intraday trader, you can initiate long or short trades. That means you
can buy a stock and then cover it before end of trading or you can sell the stock
and then buy it back before end of trading.
3. Be cautious when you are selling short intraday (selling without delivery). If
you sell the shares and do not square it off intraday, then it will result in short
delivery and go into exchange auction. Such auction can result in huge losses to
4. When you are trading intraday, always stick to liquid stocks. You do not want
to get into a trade and then realize that the bid-ask spreads are too wide and resulting
in huge losses. Restrict your intraday trading to the 200 most liquid stocks only.
5. Be cautious of T2T (Trade to Trade) stocks. These are stocks where only delivery
is permitted so if you buy these T2T stocks in the morning then you cannot square
off these stocks intraday. You have to necessarily take delivery.
How do intraday traders actually go about their job?
Intraday traders do not get too deeply involved in fundamental analysis of the stocks.
They focus more on technical charts, pivots, supports/resistances and news flows.
Of course, the key in intraday trading is discipline. That entails discipline with
respect to placing stop-losses, profits targets and overall protecting your capital.
That is the crux of intraday trading!