Home/Blogs/Is Intraday Trading Very Risky

Is Intraday Trading Very Risky

As intraday trading involves the purchase and sale of stocks in the stock market within a single day, it is considered risky for some traders. This is so for beginners and experienced traders and investors alike. Obviously, you may have guessed that if trades are opened and closed on the same market day, you may well earn high profits through intraday trading, but this may come at increased amounts of risk. If you grasp and identify the risks you may face while engaged in intraday trading, you may think of strategies to combat risks, or at least, mitigate them.

About Intraday Trading

Since the activity of intraday trading involves the buying and selling of stocks on the same day, there is no real holding of stocks. You have to close all your intraday trades within the market day period and you may not be required to open a Demat account. Although most traders who partake in any kind of trading do open Demat accounts, and the Securities and Exchange Board of India (SEBI) has mandated the opening of Demat accounts when you are engaged in any stock trading, you should open one. Furthermore, as tempting as it may appear to make gains within a day of intraday trading or day trading, you should know that trades are short-term ones, and in that sense, you are more of a trader than a real investor.

The Risks of Intraday Trading

Any trading and investing that promotes short-term returns comes with a substantial level of risk. Intraday trading can be an appealing prospect for the best traders and they may even earn their daily bread out of it. However, knowing that the following risks may befall traders is necessary for intraday trading:

Risk of Stock Choice - You may be at risk in traday trading because of your choice of stocks to trade in. This being one of the main risks in day trading, you have to pick stocks based on fundamental research and know that the stock may turn in a day and go higher. Without analysis, you may stand a high chance of risk.
Risk of Volatility in Markets - As it is, volatile markets and fluctuations in stock prices are risky for even long-term investors. Sudden price shifts are very risky if you wish to close your trades in one day. You may choose the appropriate stocks, but unexpected fluctuations in price may still occur. However, if you select shares of reputed and reliable companies, your risk may be minimised.
Risk of Too Much Exposure - Traders in the markets can use leveraging to expose themselves in the market, but often, these positions taken are higher than traders can cover. Traders may trade with high margins, but this may be very risky in intraday trading. You may think you have a chance at higher gains, but that means heightened risk too.
Emotional Risk - Who doesn’t know that trading is often driven by sentiment and feelings? Emotions come in the way of an objective approach to trading and mislead intraday traders in their trading choices. There is no such thing as ‘instinct’ in the trading world, and speculative trading, although successful at times, may prove unsuccessful when you are on a time limit to shut your trades.

Knowledge-Backed Trading

You can open a Demat account online and start your investment ride with reliable brokers like Motilal Oswal. With an online platform that teaches you the ‘tricks of the trade’ quite literally through blogs and videos, you can choose day trading or make your selection from various investment plans to grow your portfolio.