Stock market trading is popular across the globe. The reason? It is a good source of alternate income to support oneself in these times of surging prices. Investing in the stock market, however, is a bit of a gamble. Investors often come up with trading strategies to help with this gamble. Intraday and interday trading are basically different trading strategies used by investors looking to earn a profit on the stock market. If you’ve just started trading, knowing the difference between an intraday and an interday trade can be beneficial.
You can choose your method based on yourrisk appetite and preferred investment period. The rules differ for intraday and interday trading depending on the type of securities you are trading. Here’s everything you should know to pick your strategy!
Introduction to Intraday and Interday Trading
Intraday trading involves trading securities in a single day only during the market's regular business hours. Interday trading is when a trader purchases securities with the expectation that it may take longer than a day to reach the profit goal.
Both Intraday and Interday Trading are very short-term trading strategies are focused on very short-term trades. However, these two are quite different in the approach, time horizon,and risk profile.
Difference between Intraday and Interday Trading
Intraday means ‘within the day’ and as the name suggests, the time horizon for this trading strategy lasts within the business hours of a single day. Here intraday trading, one takes a position in stock, futures or currency after the market opens and closes the position before the market closing hours on the same day. For this reason, it is commonly referred to as ‘day trading’.
Interday trading, on the other hand, has a longer trading time horizon, wherein the trading position is kept open for at least through the close of markets and overnight. The usual practice followed under interday trading is that the trader takes a position in a security with the expectation of holding it over several days. Thus, interday traders can easily include fundamental analysis into trade selection.
How to select your strategy?
Intraday trading is generally followed by investors who are looking to make quick profits from small fluctuations in stocks or futures prices between the openings and closing of the market on the same day. This strategy is lucrative owing to leverage which comes from the use of margin loans. Day traders can avail twice the leverage compared to those who hold stocks overnight.
- You can buy shares without paying the full price of shares (through margin money)
- Lesser brokerage compared to interday trading
- Trading often occurs in currency markets where global financial centres which allow investors to move trade from one exchange to another.
- Irrespective of the confidence in the company, you have to sell the shares within the same trading day
- It is stressful as you need to monitor the market for the entire day
- Requires traders to make more money in order to book profits.
Hence, if you’re looking to reap benefits within a day, intraday trading may turn out to be beneficial for you.
Interday trading is not merely focused on price action. The focus is on fundamental analysis pertaining to specific investments. When considering trade selection, investors can factor in fundamentals such as earnings reports, government announcements,and corporate actions. This method of trading enables a longer-term horizon, allowing investors with more time to look for trades.
If you are the analytical kind and don’t mind waiting for a few days before cashing in, you may opt for interday trading.
Recommendations for Beginners
If you’re new to trading, these recommendations may come in handy!
- Practice using simulated money on a demo account to familiarize yourself with stock trading.
- Have a game plan and pre-defined entry, exit and escape.
- Avoid placing trade orders in the first 15 minutes of the market opening.
- Remember that the margin money is a loan.
- Conduct your research and cover the basics before you begin trading.
- Evaluate tips before acting on them.
Which is the better option?
Be it intraday or interday, different people tend to vouch for different strategies. These might have worked for them in the past owing to various factors. The ultimate decision depends on your situation and preference. Before you begin investing, you should determine the risks you are willing to take and how soon you want the returns.
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