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Different investors use different techniques to make profits from the share market. For example, some traders prefer to buy and sell their shares during the same trading day (known as intraday trading), while others prefer to buy and hold their shares for longer periods (known as delivery of stocks). Read to know the difference between intraday and delivery trading.
Stock market trading can be a thrilling experience, thanks to the volatile and unpredictable nature of the securities. While you can make substantial profits, the chance of running into losses is just as great. But a mechanism called stop loss helps limit your trading losses. Interested in how to use a stop loss strategy in your intraday trading? Let’s find out more.
Intraday trading or day trades are proving to be an excellent avenue for investors to crack quick profits by way of reading the markets correctly. Intraday margin is an inherent and important aspect of day trading that you need to grasp.
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In intraday trading, you can either take a buy or sell position in a stock with the goal of squaring off the position within the same day. If, during the course of the settlement cycle, the price moves in your favour (rises in case you have a buy position or falls in case you have a sell position), you could earn potential returns. However, if the price movement is not in your favour, you may incur a loss.
In short, a trader buys a stock and sells it on the same day, or sells a stock and buys it back on the same day. If the position is not squared off by the end of market hours, it will automatically be squared off by the system.
Transactions in Cash Segment, whether buying or selling, are settled by “delivery”, which means deducting cash from your account and delivering the shares in your Demat account. In contrast, intraday trading involves squaring off executed trades in the same settlement cycle. However, if you wish to keep your position for a longer duration, you can convert them into delivery in intraday (Margin).
For example, if you place an order to buy 100 shares of Reliance in the cash segment, your goal is to pay for and receive the shares in your Demat account. On the other hand, if the same order were to be placed in the margin segment, your goal would be to sell those shares during the same settlement cycle but at a higher price to earn potential returns. However, if the price falls, there may be some amount of loss incurred.
Typically, to buy shares, you must pay 100% of the share value, and to sell shares, you need to have the shares in your Demat account. But in intraday trading, you only pay a portion of the share value as margin.
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Delivery |
Intraday Margin |
|
BUY |
If you place an order in delivery to buy 10 shares of ITC trading at Rs 450, you pay Rs 4500 (=450*10). | If margin required is 20%, then, you only pay Rs900 (=Rs 4500*0.2) |
|
SELL |
If you sell 10 shares of ITC in delivery, those 10 shares will be sold from your Demat holdings | It is not mandatory to have ITC shares in your Demat account. You can sell first and buyback later (within the same day) |
While intraday trading does offer various opportunities, it also comes with its own set of risks. Efficient intraday trading depends on several factors, some of them are:
When intraday trading make sure you have a clear strategy, conducted thorough research, and understand the underlying risks involved.
Short selling involves borrowing shares of a stock and then selling them with the expectation that the price will decline. The seller aims to buy back the shares at a lower price, return them to lender and pocket the difference as a potential gain. This strategy benefits from a decrease in the stock’s price.