Intraday trading is speculative trading in financial securities i.e. buying and selling of stocks before the markets close for the trade day. It is a type of short term trading, where investors seek to earn profits from the hour to hour price fluctuations in the stock market. This type of trading is carried out with stock futures and options (type of stock derivatives) and is highly demanding in the type of monitoring, tracking and timeliness required to take calls on sale and purchase of stocks. In order to trade in futures and options you need to know how to trade intraday.
Intraday trading needs traders to move fast, know which stocks to pick, be in-step with market trends and have risk appetite to absorb losses as well. Knowing how to trade in equity markets is not sufficient to become an intraday trader.
A trading account is the interface used by an investor to buy and sell shares in the stock market. Once shares are purchased, they are stored, in electronic format in the Demat account. The trading account and Demat account work in tandem to allow you to buy/sell and hold different types of equity. For the purpose of intraday trading, a trading account is used by investors to trade in futures and options before markets close for the day.
A Demat account by definition is a dematerialisation account that holds equity in electronic form for the investor. For holding long term investments a Demat account is mandatory as declared by SEBI in 2014. For intraday trades in the F&O (futures and options) segment, there is no delivery of shares. Hence, a Demat account is not required for intraday trading.
Intraday trades do not require a Demat account as there is no delivery of shares that occurs when dealing with futures and options. There is only an option or obligation to buy/sell in the future. This eliminates the need of a Demat account entirely. However, most Depository Participants (DP) offer zero account opening fees for Demat accounts to investors opening trading accounts. In this case, you may choose to open both with the same DP for the sake of your convenience.
DPs offer Demat accounts with the opening of trading accounts for the same cost. For any instruments you may want to hold in the long term in equity markets whether they are stocks, bonds, mutual funds, insurance, etc. you will need a Demat account as mandated under SEBI. For this reason it is advisable to open a demat account along with your trading account.
It is easy to get confused between the terms Demat account and Trading account. Keeping the aforementioned points in mind will give one clarity on the same. Sometimes, even regular investors do not know about the same. This shows that one must do adequate research before making decisions related to investments.
Related Articles: How to Decide Whether a Stock is Fit for Intraday Trading | 7 Reasons why Intraday Traders often Lose Money in Stock Markets | Best Intraday Trading Tips and Strategy | 20 Things you Need to Remember when you Trade Intraday | Successful Intraday Trading Strategies