If you are new to stock market and just started trading, one term you must have heard to make quick money. Yes, we are talking about Intraday.
Intraday simply means you buy first and sell later in the same day or vice versa. But whether you buy first and sell later or sell first and buy later in both the cases you square-off your trades before closing of trading hours for the day.
In case of Intraday you can buy more stocks with less funds as you get leverage or margin from your broker. Percent of Leverage or Margin may be different depends upon broker to broker.
Suppose, Stock Price for ABC Ltd is Rs.100 and you have Rs.10000 to do trade, then in normal trade you can buy only 100 Shares (Rs.10000/Rs.100) but if you are not interested in taking delivery of the stock but want to take the benefit of fluctuation in the stock you can opt Intraday and instead of only 100 shares you can buy upto 500 shares depending upon the margin your broker is giving you with the same sum of Rs.10000 only. You can make big position in a stock just by giving fraction of total trading value.
In case you want to convert your intraday into delivery then there is an option “Convert to Delivery” by which you can convert your intraday trade into delivery but you need to deposit remaining amount of fund and it can be done before specific time near closing of trading hours.
Now, you have better understanding about what intraday is all about. Let’s discuss how this “Get Rich Quick” Strategy can destroy your wealth
You Become Greedy
As you have seen that in case of Intraday, you can buy more shares with small amount of fund, it makes you greedy. In above example when earlier you were buying ABC Ltd share you were putting only Rs.10,000 at risk but now in hope of getting bigger profit if stock moves upward you have put Rs.50,000 at risk.
Yes, it is correct that Rs.40,000 is the leverage but if stock does not move upward and start falling down then you would be on losing side and loss will be debited to your account by the same broker who has given you leverage so he could earn more brokerage.
It is Broker’s Trap who intentionally wants you to make trades more frequent so he can earn high brokerage.
Can’t be lucky every time
You must have heard that so many people make money in intraday but ask any one of them, Do you make money on daily basis. The answer you will get “No” and if someone claims that he makes money daily in intraday trading, he is a liar. You can win trades, earn money in intraday but not in every trade or every day.
Suppose, on a given day make 5 intraday trades and get success in every intraday. You find it easy to make quick money and again next day made 7 intraday. Now next day you could loose 3 trades out of 7 or could loose all 7 trades. Your loss can be bigger than what you have earned earlier. Nobody is expert of “Continuous winning in Intraday”
Intraday is a trap
When you do intraday and you are a beginner you remain bit confused when to square off your trade. Suppose you have made an intraday position in a stock, when it was trading at around Rs.656. Now when price move to Rs.660 or Rs.662, you start getting temptation to square off at as you are in profit no matter that is small one.
For every small profit you get tempted to square off but you must have noticed that it is not the same case if stock starts moving in opposite direction. Suppose just after you bought it, Stock Price declined to Rs.654 or 650.
Now you will not book your loss as in hope of recovering, you will hold your position. Even if you have put a stop loss at Rs.649 you would get tempted to change it to a lower level.
You will always feel reluctant to book loss in intraday even if stock price keeps on falling. This could lead to heavy losses at the end.
Small traders, in hope of Rs.500 or Rs.1000 profit from any trade in intraday sometimes book losses of Rs.5000 or Rs.10000 or more. Whether you book loss or profit your broker will make brokerage on both.
Intraday is a Blind Game
If you are new to market, don’t know much about why stock is going up or down. But, just want to make profit in intraday through buying at low and selling at high, you are fooling yourself.
You have not studied that stock, don’t know about technical aspect, don’t know how to read charts or even don’t have expertise on analyzing effect of any news on stock price, then it’s a blind game and a pure gambling with your hard earn money.
Even if you have done all your homework before entering into any trade, still it is not 100% guarantee that you will make profit in that trade.
Suppose you were tracking a highly volatile stock “ABC Ltd” and you find market is in bull run and there is a very positive news in ABC Ltd. You make your mind to do Intraday in ABC Ltd.
In the opening trade you buy 100 shares of ABC Ltd at Rs. 210 and expecting it to fly high during the day. But ABC Ltd starts trading lower and lower and it starts showing Rs.205 or Rs.202 levels. Why stock is not moving in line with positive news? Now Operators come in picture.
They trade in heavy volumes and move market as per their wish. Operator can be a single Trader or group of traders. Beginners in stock market some time find themselves at losing end due to this operator’s trap.
If you are a beginner, do not look for quick money in Stock Market. Great Wealth can be created in long term investing only. But, still if you are interested in Trading then first devote some time to learn Stock Market.