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What is Intraday Trading and Short Selling? Research Team | Posted On Monday, May 28,2018, 06:55 PM

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What is Intraday Trading and Short Selling?



If you want to make the best use of market volatility and fluctuations, you must learn Intraday Trading. Intraday Trading is a method of trading in stock markets. In Intraday Trading, the goal is not investing. The goal is just to buy shares so as to make quick profits, owing to the fluctuations in stock prices.

Intraday Trading is considered to be gambling and not an investment. Nevertheless; you can make decent money in the stock markets.

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What is Intraday Trading and Short Selling?

In Intraday Trading, you have to open and close your positions on the very same day. It is essential that you buy and sell the shares on the same day. Intraday has to take place within the trading hours as fixed by stock exchanges like NSE and BSE.

Things to know on Intraday Trading:

1. Choose two to three highly liquid large-cap shares. Large-cap shares have high trading volume and hence, you will not have to hold these for a long-time. Mid-size or small-cap shares may have to be held for a longer time, as these shares have low trading volumes.

2. Intraday trading is very risky. It is wise to be cautious. Start by deciding your entry level and target price. Try to stick to the target price. Do not sell off the shares, if you see just a nominal increase in share prices.

3. Choose the stop-loss strategy. Stop-loss is a level beyond which, if share prices fall, your shares are automatically sold. This is used to minimize your loss to the greatest possible extent.

4. Never panic in intraday trading. Do not be greedy and hold back the shares. It is not only important to cut losses, booking profits once the target price is reached, is also important. Adjust the stop-loss trigger as and when needed.

5. There is a fine line between investing and Intraday trading, although, the strategies are not very different. There may be instances when retaining the shares is wise. But, do not hold back the shares beyond the trading hours.

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6. Research before you place your order. It is best to create a wish list and study these shares closely. Learn about the Companies like mergers, bonus dates, dividend payments and so on.

7. Stock markets are very volatile. Even experts fail to predict market movements. Therefore, do not test the market if it moves against your expectations. You might do better by exiting and squaring off your positions to avoid losses.

8. There is this golden rule: ‘Invest only what you can lose.’ Intraday Trading is outright risky; therefore, avoid investing living expenses in the stock market.

With Intraday Trading, you can make profits, when the market is bullish and even if it is bearish. Let’s say the market is bullish and you buy 100 shares of XYZ Ltd. at a lower price. Sell all the 100 shares when prices go up to make a profit.

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What is Short-Selling:

You can even make money when stocks fall through Intraday Trading. This can be done through short-selling. Let’s understand this with a simple example. You can sell shares of a company, say ABC Ltd. without actually owning them, with the hope that its price will go down.

You borrow 100 shares of ABC Ltd. from your stock broker. You sell these 100 shares in the open market at Rs 500 per share and get Rs 50,000. If the price of ABC Ltd. goes down to Rs 450 a share, you buy 100 shares at Rs 45,000. You then replace the shares that you borrowed from the broker. The difference (Rs 50,000 - Rs 45,000 = Rs 5,000) which is your profit.

Note: If the price goes up, you suffer a loss.

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