INTRADAY TRADING

 

Traders base their profits on different kinds of purposes. One may be a long-term investment which is a gradual process, yet may produce high returns. The other can be a short-term strategy which includes trading with quick gains. One such method is intraday trading.

Basics of intraday trading:

Intraday trading refers to buying and selling of index option on the same day. It is done using online trading platforms. Suppose a person buys option, they have to specifically mention ‘intraday’ in the portal of the platform used. This enables the user to buy and sell the same number of options of the same option on the same day before the market closes. The purpose is earning profits through the movement of market indices. It is also referred to as Day Trading by many.

Stock market earns you great returns if you are a long-term investor. But even on the short term, they can help you earn profits. Suppose a stock opens trade at Rs 500 in the morning. Soon, it climbs to Rs. 550 within an hour or two. If you had bought 1,000 stocks in the morning and sold at Rs 550, you would have made a cool profit of Rs 50,000 – all within a few hours. This is called intraday trading.

What is options trading?

Options trading allows you to buy or sell stocks, ETFs etc. at a specific price within a specific date. This type of trading also gives buyers the flexibility to not buy the security at the specified price or date.

While it is a little more complex than stock trading, options can help you make relatively larger profits if the price of the security goes up. That’s because you don’t have to pay the full price for the security in an options contract. In the same way, option trading can restrict your losses if the price of the security goes down, which is known as hedging.

The right to buy a security is known as ‘Call’, while the right to sell is called ‘Put’.

What is futures trading?

In order to understand futures trading, you should know what derivatives trading is. Derivatives are financial contracts that derive their value from the price movement of another financial item. The price of a derivative tracks the price of another (i.e. underlying) from which it gets its value.

Futures contract is one such financial instrument wherein a contract or agreement is formed between a buyer (the one with the long position) and seller (the one with the short position) and the buyer agrees to purchase a derivative or index at a specified time in the future for a fixed price.

As time passes, the contract’s price changes relative to the fixed price at which the trade was done and this creates profit or loss for the trader. Every contract is monitored by the stock exchanges who settle this trade and stock exchanges.

What do ‘buy’ and ‘sell’ mean in trading?

When you open a ‘buy’ position, you are essentially buying an asset from the market. And when you close your position, you ‘sell’ it back to the market. Buyers – also known as bulls – believe an asset’s value is likely to rise. Sellers – or bears – generally think its value is set to fall.

When you open a position with a broker or trading provider, you’ll be presented with two prices. If you want to trade at the buy price, which is slightly above the market price, you open a ‘long’ position. If you want to trade at the sell price – slightly below the market price – you open a ‘short’ position. The difference between the buy and sell price is known as the ‘spread’, which the provider takes to facilitate the position.