What are the Benefits of Intraday Trading?
- 01 Mar 2024
- By: BlinkX Research Team
Intraday trading is usually seen as a high-risk activity, not just by novice traders, but also by expert traders. But, just as every coin has two sides, don't we also consider the benefits of intraday trading?
Have you ever dreaded an exam only to ace it completely? If you answered yes, you know there is a distinct thrill in closing the most complex deals and doing something that previously seemed impossible.
If you have been focusing on the disadvantages of intraday trading for a long time, it is time to turn your attention to the benefits of intraday trading.
Check out the Intraday stocks for today here.
What is intraday trading?
Intraday trading is a daily trading process that involves buying and selling stocks through online platforms. To participate, one must clearly understand the trend and take a position based on it. A trend view involves predicting the future direction of stock prices within a given period. If prices are expected to rise, one should take a long position, buying, and if they are expected to fall, a short position, selling. To settle a position, one must square off by the end of market hours or have their broker automatically do so.
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Table of Content
- What is intraday trading?
- Benefits of intraday trading
- Advantages and Disadvantages of Intraday Trading
Benefits of intraday trading
The following is the list of benefits of intraday trading:
- Minimises risk
Intraday trading minimises the risk of substantial losses as securities are bought on the same day. Whereas, in the case of standard trading, the principal is locked in for a long time, so price changes can be significant, which makes an investor lose money.
- Eliminates overnight risks
The biggest benefit of intraday trading is that there's no overnight risk. The trader has to close the position before the end of the trading day to make sure the profitability doesn't change due to any changes during this time. Thus, you won't be affected by any stock market tragedy, global or local, on that particular day.
- Low commission rate
Brokers don't charge a lot when transacting intraday as delivery expenses for transferring securities in an investor's name aren't incurred. In general, brokerage fees charged for intraday trading are one-tenth of those charged for standard trading. To accurately assess and compare the brokerage costs between intraday and standard trading, it's advisable to calculate brokerage using a reliable brokerage calculator.
- Offers higher returns
You can witness amazing profits in a short amount of time when you combine intraday trading with an effective trading strategy. Stock traders often use short selling to generate profits when market conditions are adverse. However, the key here is how you develop and implement your strategy.
- Financial liquidity
One of the benefits of intraday trading is that total financial resources invested can be quickly recovered. There's no blockage through an asset purchase. It preserves the liquidity of an investor to meet his or her own needs.
- Gains from market fluctuations
Depending on your investment strategy, intraday trading can make you money in bullish or bearish markets. When the market is bullish, you can get capital appreciation by buying and selling stocks. When the stock market falls, short-selling can make you money.
- Leverage
Among the great benefits of intraday trading is the fact that even those with little capital can start day trading. Often, leverage is used by intraday traders to increase profits.
Also, there are brokers who offer quadruple leverage for experienced brokers with accounts worth millions or more.
Your bank evaluates your financial profile and approves your loan. The same thing happens on the stock market, where a broker evaluates your shareholding record and cash availability. In most cases, the margin is five to ten times the available cash in your account. If your broker gives you a 10x margin, you can buy stocks worth INR 1 lakh with INR 10,000.
- Sell first, buy later
Stocks are usually bought first and sold later by positional traders. However, intraday trading lets you sell stocks first and buy them later. So, you can also trade and profit in a bear market. Short-selling is also possible with futures and options, but capital requirements are typically higher. Thus, intraday trading is potentially your best option if you want to use the ‘sell first, buy later’ strategy to profit.
- Source of money
It should not be difficult for you to turn this into an active source of income if you use the right intraday strategies and dedicate yourself full-time to them. Additionally, in intraday trading, some traders have made a lot of money. Further, to do intraday trading correctly, you need to do extensive research, put in a lot of effort, and decide on the right time period and strategies ahead of time.
- Learn a lot
The intraday market is a great way to learn, examine and apply various trading techniques in a short period of time, so you can test out various strategies and see which one works for you.
Advantages and Disadvantages of Intraday Trading
Here are the advantages and disadvantages of intraday trading:
Advantages | Disadvantages |
|---|---|
| Requires lower capital compared to delivery trading, utilising margins for trading in the stock market | Limited time window of about 5-6 hours for trading; missing opportunities requires immediate position closure |
| Allows potential profit magnification due to trading on margins, amplifying gains with higher leverage | Leverage can work against traders, exponentially increasing losses alongside profits |
| Offers the ability to profit from both long and short positions within the same day | Markets may deceive, leading to capital loss despite some successful trades |
| Enables short selling within the day, unlike conventional markets, providing flexibility for negative stock views | Discipline and risk management are crucial; lack thereof can significantly impact intraday trading performance |
| Utilises stop losses and profit targets, reducing risk in terms of potential maximum losses | Requires various roles—analyst, chart interpreter, trader—demanding continuous effort and focus |
| Intraday trading resembles borrowing from the market without interest, surpassing traditional margin funding | Sudden volatility can exponentially amplify losses, potentially leading to unmanageable levels |
| Potential for significant profits if successful, but magnification effects work both ways, increasing risks | Hasty entries and exits might hinder long-term profit opportunities, limiting room for error in intraday trading |
Conclusion
In intraday trading, financial instruments are bought and sold on the same day. Additionally, there are several benefits of intraday trading to skilled traders. However, intraday trading has the major benefit of being less risky than long-term investments due to its short time frame. As well as removing overnight risks, intraday trading ensures traders aren't affected by market events during non-trading hours.
Additionally, there are other benefits to intraday trading, like reduced commissions since brokers don't have to pay for delivery. Moreover, intraday trading offers short-term profit opportunities and the ability to take advantage of market fluctuations for higher returns. However, to fully reap the benefits of intraday trading, you need to develop effective strategies and practice risk management.
