Quick buck pangs, like hunger pangs, can hit you anytime. And just like the latter, the quick buck pangs directly cloud your better judgement and rational thinking. However, the price you pay for giving in to both these impulses is what really matters. Hunger pangs can lead you to binge eating while quick buck pangs can lead you to things which can cause heavy monetary loss. There are various means through which you can make quick money i.e. lottery, races, roulette and in equity, futures and options and intraday trading. Let's talk about intraday trading. Over the years, it has made loads of money to the traders at the same time it has caused severe losses to many. What is intraday trading all about? Is it fair to compare it with a lottery or is it a form of trading where analysis and application of mind and skills pay off? It's an enigma worth exploring.
An Intraday trade is the one in which a trader buys and sells the stock in the same trading session. Usually, intraday trades are carried out on the margin or leverage (service provided by brokerage firms) which enables the traders to buy stocks in a large quantity. Hence, the aim of the trader is to capitalise on the small movements of the stocks which can bring in huge profits. This is just one side of the story. But as the market moves either side, if the bought stock moves in the opposite direction, intraday is capable of bringing in losses of high volume.
Should Retail Investors Try Their Hand At Intraday Trading?
Instead of giving a flat out yes or no answers let's try to understand the qualities and skills one needs to benefit from intraday trading. It will not be right to discount all the possibilities without giving it a thorough analysis. After all, there are various traders who are drawing huge profits via intraday trading. You can certainly try intraday trading if you meet the following criterion.
If You Are A Full-Time Trader - Essentially, intraday trading is a tool of full-time traders. Traders who know how the market functions and have full knowledge of stocks and their day-to-day behaviour. Also, it is important that you have a massive risk appetite as the stocks move on the exponential rate which makes it capable of giving big profits and losses. If you are one of those who gets panic attacks every time some stocks in your portfolio goes in red then intraday is not your thing.
If You Can Identify Entry & Exit Points - As intraday is carried out in a day's time, it is critical that you enter and exit the stock at the perfect time. Traders usually follow the chart patterns (Technical Analysis) to determine in which direction the stock is moving. Sometimes, the patterns forming on the charts are coupled with the market news (acquisition, quarterly results, etc.) which have the potential to move the stock. The more the stock moves in your direction more profit you get.
Things That Can Go Wrong
Considering the risk and volatility of the market, it will be safe to say that there are more reasons for intraday trade to go wrong than it going right. Let's take a detailed look at all those things which work against the traders.
High Risk To Capital - Intraday trading is an extremely risky proposition. In order to get decent gain one has to buy stocks in a huge quantity. For example, you buy 1000 shares of ABC company at Rs. 250. The cost of the trade would be 2,50,000. You have entered the stock thinking it will go to 255 in the single session, however for some reason, if it goes to 240 you will end up losing Rs. 10,000 in a single trading session.
Hope Of Success - The very reason you start considering intraday trading is that you hear these overwhelming fairytale stories of some trader who made his fortune through intraday trading. Some stories are so convincing and inviting that it gives you an impression that making money in the stock market is a cake walk. It is not, statistics say that only 2% traders make money from day trading. The other way of reading these stats is - 98% traders lose money in intraday. If the stats are so clear then why traders keep trading? HOPE. The hope that someday they will strike gold and all their losses will get squared off. That's why they say, to succeed in the stock market you need utmost financial planning and emotional balance.
Your Day-To-Day Life Takes A Toll - The things which look attractive in the beginning are the same things that will look horribly wrong when your day trading strategy goes wrong. The idea of working only in the market hours and drawing handsome profits at the end of the day sounds fun, doesn't it? But once you get in the thick of the things the same 'fun things' are being glued to the computer screen in the market hours, getting anxiety attack every now and then and booking losses on most of the trading days. Does it sound fun? Not at all!
Trading On Margin? Get Ready For Double Risk - Many brokerage firms offer the margin to the intraday traders. It simply means that you trade on the borrowed money. In a margin trade, the trader usually has to pay only 15-20% of the total price of the transaction. The only condition here is that the buying and selling have to be completed in the same day. If the stock moves in your favour you get to make a good profit at low capital investment, however, if it goes against you, you either have to hold the position long or book the losses. Either way, you have to bear losses and also have to pay the interest on the margin provided by the broker.
If Not Intraday Trade Then What?
If you are a working professional it is virtually impossible for you to manage intraday trading. The time and devotion it demands makes it the most unfeasible option. What should those people do who can't deal with intraday trading? There are other investment options like long-term investment and short-term investment where the chances of good returns are higher at lesser risk.
If you can't meet the requirements of intraday then it's best to look at the stock market as an investment platform. Buy good stocks, hold them for a long time and see your wealth getting fatter with time. If you sink your teeth a little deeper you will realise that those who have made money from the stock market are always long-term investors. From Warren Buffett to Rakesh Jhunjhunwala all the wealthy investors who have invested with long-term investment prespective have laughed their way to the bank.
