Day trading, or intra-day trading is when you buy and sell stocks or a stock within a single day. You buy after the market opens at 9.15 in the morning and sell before it closes at 3.30 in the evening. Day trading is a fantastic way for women to earn money because it doesn’t require you to really get out of the house. All you need is a functioning internet connection, a trustworthy broker on the phone and some attention.
How does intra-day trading work?
Intra-day trading works based on daily movements of the stocks that are traded in the stock market. Let’s say you buy 1,000 shares for Rs 100 of Company X at 10 am. Around 12 noon, you find that the shares are trading at Rs 108. You sell those shares right then and make a profit of Rs 8,000.
What do I need to become a day trader?
The first thing you need to become a day trader is an understanding of how the stock market works. You can read my basic guide to begin with and then take some time to watch business channels and observe how political news, oil prices etc affect the way the market functions.
Next, you’ll need a demat account and a trustworthy broker with whom you are comfortable talking to (because you’re going to be doing a lot of talking as a day trader). You will also need to make an initial investment when you are starting out with day trading, called a ‘margin account’. This margin account is a bit like a pledge or a surety because it will allow you to buy more shares than your actual capacity to purchase. The margin money varies depending on how much you want to invest, so make sure you get it clarified before you start.
Entry price and exit price: Entry price is the price at which you buy the stock. Exit Price is the price at which you sell the stock. Take the previous example of Company X. Rs 100 will be your entry price and Rs 108 will be your exit price.
Stop loss: Perhaps the most important term that you need to learn when it comes to day trading is stop less. Your stop loss is the lowest share price at which you’re willing to hold the share. Let’s say you buy 1,000 shares at Rs 100 in the hope that you can sell them at Rs 105. However, the market falls and consequently, the share prices. The share price of your investment goes from Rs 100 to Rs 98 to Rs 90 in minutes. Defining a stop loss ensures that your holding is automatically sold the moment it hits that price. In this case, if you had defined your stop loss to be Rs 98, your loss would be restricted to Rs 2,000.
Other things to remember:
The great thing about day trading is that you don’t really need a massive initial investment – you only need some margin money and time. When you’re a regular investor and you call your broker to make a share purchase, he is going to buy it on your behalf after which you send him a cheque for the amount. When you sell it, he will receive the proceeds, take a small percentage as commission and remit the rest to you.
When you do intra-day trading on the other hand, the purchase and the sale happens within hours – as a result, you’ll either receive your profit, or pay only for the loss. For day trading, it is recommended that you stick to shares that are listed in popular indices because they are sold/bought very easily.
Starting small will help you understand the way the market moves and get better at day trading. You will gain more confidence as you trade and you can up your trades accordingly.
Research, Research, Research
Intra-day trading sounds like a stress-free way of making money, but it isn’t. It requires you to study the market, do your research and have a watch-list of stocks whose performance you will have to track minutely. Once you get comfortable trading though, it’s a great way to make money. Don’t let the jargon put you off! A little bit of patience and reading can make the stock market your oyster.
Finally, you need to be aware of a few terms that are used by traders. Knowing these terms helps you save time and eliminate confusion.
This concludes the stock market series. If you found it useful and would like to learn about another financial concept, do send us an email! We would love to hear from you and are always looking for ways to make this column as useful as possible.
Rupee Rani is a weekly column on finance for women. Write to us with your queries at firstname.lastname@example.org.