Buying and selling stock market financial instruments on a daily basis is called intraday trading. The instruments in the trading are stocks, commodities, currencies and others. You can buy the stock market financial instruments through the day and sell them before the market closes for the day. The profits on the intraday trading instruments are through the volatility in the stock market.
This is not so good but sometimes it may be useful. With the help of intraday trading, you can earn a very good amount of money. Sometimes you may have to lose a large portion of your investments. There is always a possibility of any events happening and this is the reason that it is very important to know the advantages and disadvantages of intraday trading.
Pros
- Risk
- Marginal trading
- Buy at fall of the market and sell at high rates
- Regular income source
- Company Fundamentals
1. Risk
The profits or the losses that you earn for the day will be added to your account in the intraday trading. When the markets close for the day the investments are settled for the day and there is no risk of carrying the losses for the day to the next day. The facility of withdrawal and spending is provided in intraday trading.
Every day is a new day and losses or profits earned on the previous day will not have an impact on the next day. Overnight changes and the happening of any events will not affect your investments as the settlement is done for the day when the day closes for business.
2. Marginal trading
Trading using the limit amount on your Demat account is one of the greatest advantages of intraday trading when compared to other forms of trading. The stockbrokers in the market will give options to the customers with certain margins. It means that the investors can purchase or sell their investments by giving a small portion of the investments.
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3. Buy at fall of the market and sell at high rates
Intraday trading is used for short selling purposes; it means, sell the stock first and then buy the same stock in quantity after a period of time.
This method will help you to earn huge profits because buying a fall of the market and selling at high rates will always be beneficial. This facility is not available on other types of investments such as long term or medium-term investments.
4. Regular income source
Experts say that an experienced investor who trades on intraday can book profits on his investments on a regular basis. A regular income source is possible with intraday trading where you can meet your day to expenses by making the right investment decisions.
When you make investments in long term investments you should wait for a certain period of time. The prices may go up and you can book profits by right investing decision. You can withdraw your profits as cash on a daily basis.
5. Company fundamentals
It is not mandatory to learn the company fundamentals when you are doing intraday trading. The fundamentals of companies are useful when you are making long term investments and it is not required for intraday trading.
Understanding the basics of investments is important, learn about chart strategies like momentum trade, breakout, pull back and reversal strategies. These will help you to make an analytical decision on when to invest and where to invest in.
Cons
- High returns are not guaranteed daily
- Requires self-control
- Highly risky
- Market fluctuations
- Strategies
1. High returns are not guaranteed daily
In intraday trading every day you cannot make high returns and there is no guarantee towards it. There are situations in which the market will not go in a favourable direction. This will make you lose all your investments and your investment capital.
This is one of the reasons that intraday is risky and it should be dealt with utmost caution. The same decisions on investments for buying and selling will not work daily and returns are not guaranteed on a day to day basis.
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2. Requires self-control
There are panic situations in intraday trading and it requires self-control. If you are upset about market changes then intraday trading will not be suitable for you. The market moment can go in any direction.
It can bring high returns or it can totally clean away all your investments. Having self-control and not panicking during fluctuations is required in intraday trading. Swift decisions on investments will result in losing all your investments and this is the reason that having self-control is very important.
3. Highly Risky
The markets are unpredictable and it is highly risky for the investors to make investments. The chance of losing is high in stock market intraday trading. If you are investing in intraday trading you should be ready to risk and ready to lose your investments because anything can happen either profits or losses in intraday trading.
4. Market Fluctuations
Market fluctuations are inevitable and they are part of daily trading. The stock markets open with a new start, the purchase or selling price of the previous day will not have any effect on the next trading day. The market fluctuations that happen will have an impact on the investments. You may lose or gain from the market fluctuations.
5. Strategies
In intraday trading, the strategies may fail and you have to be consistent in your decision making. You need not read the complete financial statements that you are making the investment on. Do your research and do understand when to invest and when to exit the market.
There is a lot of practice required for making the right decisions and understanding the market fluctuations. If you cannot do research then you should not make an investment in intraday trading. There are certified advisors who will instruct you on the right investments, you can choose the services as they scientifically make informed decisions.
Takeaway
The factors that are discussed above should be taken into consideration and a deep understanding of the market is required to make the right investment decision. Financial investment advisors can assist you in making the right investment decisions. They can guide you in creating awareness about the market and guide you in the right direction. Learning, understanding and evaluating is the ultimate way in which you can make the right investment decisions in intraday trading.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
