One of the many ways through which individuals try to generate profits from the stock market is by partaking in day trading. It is a unique strategy that’s not only riskier than other stock market investment strategies, but is also very lucrative in nature. So then, what is day trading? That’s exactly what we’re going to be looking at in this article. Let’s begin.
Also known as Intraday trading, day trading is a strategy where traders buy and sell stocks or other assets on the same day. The main motive of such strategy is to leverage small movements in the price of the asset to the traders advantage. Since the price movements in the asset are not likely to be very large during intraday trading, traders usually resort to placing multiple trades to make up for it.
With intraday trading, there are plenty of advantages that you get to enjoy. Here’s a quick look at a few of them.
The first and foremost advantage of day trading is that it comes with the potential to earn high returns. There have been many cases where traders have made significant amounts of profit by simply buying and selling within the same day.
Overnight risk is the risk of the price of an asset changing overnight due to a multitude of factors. Since you would be buying and selling an asset within the same trading session or day, you won’t have to deal with any overnight risks.
Generally, when it comes to day trading, many brokers allow traders to use leverage to conduct their trades. With leverage, traders can purchase more numbers of an asset by simply depositing a fraction of the investment capital. This allows traders to make higher profits with their trades without having to invest a large amount of capital.
While the advantages are undeniable, there are certain things that you would need to know about intraday trading before you take it up. Here’s a quick look at a couple of key factors that you should consider.
Compared to other strategies, day trading is significantly more risky. One of the primary reasons for that can be attributed to the use of leverage. For instance, while leverage can help you multiply your profits, it can also multiply your losses if the market doesn’t respond according to your expectations.
Predicting the movement of an asset’s price in the short-term can be very tough due to high amounts of volatility. In the short-term, the price of an asset is influenced by several non-fundamental factors such as the market trend, economic state of the nation, interest rates, geopolitical factors, and more. The increased volatility can help you make higher profits, but can also lead to significant losses as well.
Now that you know what day trading is, you can go ahead and give it a try. That said, it is advisable to start off small and then slowly increase your involvement and the amount of investment over time. Also, make sure you have an active demat and trading account before you start trading. If you don’t have one, you can simply visit Motilal Oswal anytime to open a demat account online within just a few minutes.
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