Difference Between Intraday and Positional Trading
Stock markets are one of the most common platforms for investing, and millions of people enter and exit the markets on a daily basis. When you begin trading, you can either trade as an intraday trader or a positional trader.
Published on 07 April 2022
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You can trade intraday, or you can wait for the long-term to gain profits from your investments. While both of these trading practices are common, intraday trading is the practice that most traders prefer.
If you are looking to gain short-term profits, intraday trading is worth trying. In this type of trading, you buy and sell financial instruments like stocks within a single day. So, you use the short-term stock market movements to make profits in intraday trading. However, another method to trade in the stock market is positional trading. This type of trading comes somewhere in between intraday trading and investing for a long period of time.
Positional trading involves taking overnight positions based upon the chosen method of trading, risk assessment, and time frame of interest. You can hold the positions for one to two days or even for months to make profits. The time when you wish to exit the trade is decided solely by the trader. Some people might consider intraday trading to be risky, so they choose positional trading as the time frame is longer.
Now let us understand the difference between intraday and positional trading.
Intraday vs Positional Trading
By taking a detailed look at intraday trading and positional trading, we will be able to understand the major difference between intraday and positional trading.
Intraday trading
If you choose to invest using intraday trading, you have to take new positions when the market opens and close the positions before the market closes. In addition, as an intraday trader, you have to close your position on the same day, no matter if you make losses or profits. Therefore, intraday trading involves making use of the smaller movements of the market to make profits.
Intraday trading is practised widely because traders can take late positions with higher leverage and only a small amount of exposure. When it comes to leverage-based trading, you have to exit the trading position thirty to fifteen minutes before the market closes. If you do not do so, the stockbroker will automatically square off your position. Furthermore, if you wish to change your intraday position to delivery, you need to pay the full amount of the same to your broker. All these steps need to be taken before the market closes.
Intraday trading requires a trader to be active during the trading session; therefore, it is suitable for people who are involved in the market as full-time traders. Stock markets are subject to high volatility, so, if you do not keep a tab on your intraday trading positions, your portfolio might incur losses. The benefit of intraday trading is the high leverage that you gain. Margin trading or high leverage trading comes with big wins but, if not done suitably, can lead to higher losses as well.
Positional trading
Positional trading has gained popularity in recent years because of one major reason; it has eliminated one of the top risks that come with intraday trading, which is squaring off one’s position before the closing of the market. With positional trading, you can hold your position for days, weeks, or months depending upon the nature of your trade.
Because you have flexibility when it comes to holding your position, this type of trading needs a higher capital and also comes with a higher capacity of risk-bearing. For most brokers, you might have to carry about 50% of your capital as a margin so that you can take your futures contracts overnight. But you need to remember that higher ranges of this trading might lead to an increased risk of stop-loss.
With intraday trading, you can have more than 20 trades in a week, but with positional trading, you might just have two to five positional trades. This is a major difference between intraday and positional trading. Based on the stop-loss that one keeps, it can be determined that the risk tolerance of a person engaging in positional trading might be lower or equal to an intraday trader.
Conclusion
Thus, this is the key difference between intraday and positional trading. You must understand both types of trading properly before you engage in trading. The type of trading that is suitable for you depends on various factors like your risk tolerance, capital that you can invest in trading, and the time frame that you have decided. Based on these aspects, you can decide between intraday vs positional trading. Also Read: Difference Between Intraday & Delivery Position
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Some of the benefits of intraday trading are a small amount of investment is needed, the potential of earning profits is higher, the time frame is shorter, and you do not have to worry about keeping your positions overnight. Moreover, you can indulge in frequent trading with the money that you have.
One of the major benefits of positional trading is that you have flexibility as you do not need to square off your position within a day. It is perfect for people who have moderate to low risk-taking capacity. Moreover, you have a chance to earn higher returns over a longer period of time if you stay invested for weeks or months.
Investing in stocks involves risks, so there is no best trading alternative that one can use to make profits. You have to ascertain which one suits you based on your risk-taking appetite, the capital that you have for investing, and the time frame for which you wish to invest. In addition, you have to understand the basic difference between intraday and positional trading, choose your trading method, and create the right strategy for trading.
Intraday trading carries more risk than positional trading because you need to open a new position and close your position on the same day. However, you will be able to manage the risks by constant monitoring, using stop losses, and keeping short targets for profits. With positional trading, you have time in your favour, so it carries a lesser risk.
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A lot of traders and investors, no matter how experienced they may be, fear the market at times, and for a very good reason too! The market is known to fluctuate in a volatile manner, leaving many participants with heavy losses, at least once in a while.
This can sound quite amusing! What are the steps to make profits in intraday trading? There are no set rules for making constant profits, and there are times when we tend to do all the right things, yet we face losses. But intraday trading is all about how you manage the risks and returns by using logic and trading charts.
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Whether you are new to the stock market or have been around for a while, you may have come across several trading tools and indicators. And if you have been trading futures and options, then VIX or the Volatility Index is one such term that most traders and investors are familiar with.
Some of the benefits of intraday trading are a small amount of investment is needed, the potential of earning profits is higher, the time frame is shorter, and you do not have to worry about keeping your positions overnight. Moreover, you can indulge in frequent trading with the money that you have.
One of the major benefits of positional trading is that you have flexibility as you do not need to square off your position within a day. It is perfect for people who have moderate to low risk-taking capacity. Moreover, you have a chance to earn higher returns over a longer period of time if you stay invested for weeks or months.
Investing in stocks involves risks, so there is no best trading alternative that one can use to make profits. You have to ascertain which one suits you based on your risk-taking appetite, the capital that you have for investing, and the time frame for which you wish to invest. In addition, you have to understand the basic difference between intraday and positional trading, choose your trading method, and create the right strategy for trading.
Intraday trading carries more risk than positional trading because you need to open a new position and close your position on the same day. However, you will be able to manage the risks by constant monitoring, using stop losses, and keeping short targets for profits. With positional trading, you have time in your favour, so it carries a lesser risk.
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