Intraday trading is a method of trading where individuals buy and sell stocks or other assets within the same day. Traders utilizing this method typically try to leverage the price fluctuations that an asset sees during a day to their advantage.
Although it may not be as profitable as other investment strategies, intraday trading is one of the most popular methods that traders adopt. If you’re someone who wishes to start with day trading, there are certain jargons and terminologies that you would have to first understand. Here’s a quick look at a few basic intraday trading jargons and what they mean.
The ask is the price at which a seller of a given stock or an asset is willing to sell them for. Usually, a trade with the lowest ask price is the one that has the most chance of getting executed.
The Bid is the price at which a buyer of a given stock or an asset is ready to buy them for. A trade with the highest bid price is the one that has the most chance of getting executed.
The bid-ask spread is the difference between the lowest ask price and the highest bid price for any given stock or an asset. If the difference between these two prices are high, traders refer to it as a wide spread. On the contrary, if the difference is low, traders refer to it as a tight spread.
Liquidity is a measure of how fast an asset can be bought or sold on the exchange without either the buyer or the seller compromising on their prices. The higher the liquidity for an asset is, the easier it is to buy and sell it. For intraday trading, it is absolutely essential for stocks to possess high liquidity.
Scalping is an intraday trading strategy where traders take advantage of small price changes in the asset. For instance, they buy a stock at Rs. 200 and sell it immediately when it goes up even slightly to say Rs. 202. Although the profit here is just Rs. 2 per trade, traders utilizing this strategy typically make hundreds of such trades in a day hoping for these small profits to add up.
When a trader buys an asset through the exchange believing that its price will rise, they’re said to have taken a long position. And when the price finally does rise, the trader will close out their position by selling the asset. The difference between the selling price and the buying price will be the profit.
When a trader sells an asset first without owning it, believing that the stock price will fall, they’re said to have taken a short position. When the price finally does fall, the trader will close out their position by buying the asset. The difference between the selling price and the buying price will be the profit.
Breakout is the name of the phenomenon where an asset rises above its resistance level or falls below its support level. Typically breakouts occur along with a rise in the volume. Breakouts on either side are great opportunities to take a long or a short position.
With this, you must now be aware of some of the most basic and common intraday trading jargons. Now, before you go ahead with day trading, make sure that you have an active demat account in your name. If you don’t, then you can always get in touch with Motilal Oswal to open a demat account online for free.
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