Intraday trading is one of the most thrilling sectors in the stock market, as it allows traders to potentially earn profits within a single trading session. Unlike long-term investments, in intraday trading, stocks are bought and sold the same day to profit from short-term price movements.
Such opportunities are alluring but demand an in-depth study of market trends, strategies, and tax implications. We shall enlighten you about the fundamentals, including taxation of intraday trading and demat account opening, to assist you in starting.
What is Intraday Trading?
Intraday, or day trading, involves buying and selling financial instruments in the very same day. Traders use price fluctuations to book profits, often relying on technical analysis and market trends to make those instantaneous decisions. As all trades must be squared off well before the market closes, intraday trading requires calculated-planned work and disciplined execution.
Key Features of Intraday Trading:
- Short-Term Trading: Positions are closed within the same day.
- Leverage: Traders may use margin to take larger trade positions.
- High Liquidity: The selected intraday stocks would be those having higher trading volumes.
- Technical Analysis: Charts, indicators, and patterns are an utmost important part of the decision-making process.
Steps to Start Intraday Trading
1. Demat Account Opening
To initiate intraday trading, you will need a demat account and a trading account. The demat account is for holding the securities electronically, while the trading account is for putting the buy/sell orders in the stock market.
Steps to Open a Demat Account:
Choose a Broker: Select a SEBI-registered brokerage that offers competitive trading fees, a reliable platform, and responsive customer service.
- Submit Documents: Submit KYC documents, i.e., PAN card, Aadhaar card, bank account details, and proofs of income.
- Verification Process: The broker will verify your documents and activate your demat account and trading account.
- Fund Your Account: Your account will be ready to trade upon transferring the money from your bank to the trading account.
3. Learn the Basics of Technical Analysis
Technical analysis is one of the key things relied on by intraday traders. Some basic tools and indicators are:
- Candlestick Patterns: Assists in predicting future price trends.
- Moving Averages: Used for detecting trends over a point in time.
- Relative Strength Index (RSI): Meant for measuring momentum and potential reversal points.
- Support and Resistance Levels: Indicate entry and exit points.
4. Develop an Intraday Trading Strategy
An accomplished trader accomplishes trading by a strategy. A few popular ones are:
- Momentum Trading: Buying stocks that seem to be strongly moving in any direction.
- Breakout Trading: Making trades on stocks that breach key support or resistance levels.
- Scalping: Executing multiple trades to capture small price fluctuations.
Tax Implications of Intraday Trading in India
It becomes important to know intraday trading taxation as profits earned through day trading are chargeable to tax; on that premise, the tax structure is determined as to whether the income is classified as business income or capital gain.
Tax Treatment of Intraday Trading:
- Speculative Business Income: Profit from intraday trading is classified as speculative business income and not capital gain.
- Governing Tax Rate: Taxes as per applicable income tax slab for the trader.
- Set Off Loss: Losses may be set off only against speculative gains, not against profits of other businesses or capital gains.
- GST and STT: GST may be levied on brokerage, while STT gets levied at trade execution.
Example: If you earn Rs. 5 lakh from intraday trading in a year, the income will be taxed based on your applicable slab.
Risk Management in Intraday Trading
The risk involved is as high as the profit opportunity involved in it. In this regard, here are a few tips for effective risk management:
- Utilize Stop Loss: Employ a limit order to stop losses.
- Trade on a Plan: Avoid all trading decisions that stem from natural impulses.
- Control Leverage: Serious losses are made with excessive leverage.
- Diversify Your Trading: Avoid committing to a single trade.
Final Words
Within a short time, intraday trading serves as a very good opportunity to make profits, though it calls for skills, discipline, and knowledge of intraday taxation and demat account opening. Technical analysis, strategy building, and risk management will increase your odds against failure in the stock market. Consistency and patience play a key role in building long-term success in intraday trading.
