By definition, intraday means within the same day. When you place an ‘intraday’ order, you have no intention of fulfilling it and taking delivery. When you place a delivery sell order, the stock is sold either from your Demat or settled against any delivery buy order placed by you, whose delivery is pending.
However, in intraday orders, delivery of shares bought and selling of shares from demat is not the objective. When you place an intraday order, you need to necessarily square-off your transaction before the end of the trading day. Which means-
- If you buy 100 shares of HDFC Bank in the morning, you have to sell all 100 shares before the end of the day or the broker will sell it on your behalf.
- On the other hand, if you sell 100 shares of HDFC Bank in the morning, then you need to buy them back before the end of the day.
If you book a profit, then the funds will be credited to your linked bank account after two trading days. In case of a loss, you will have to make the payment upfront to the broker in the form of a margin. In this blog, we will discuss the salient features of an intraday order, important concepts related to intraday and also see how to start intraday trading on Groww. Read on!
How to Place an Intraday Order on Groww
The Intraday Trading feature is now available on Groww Web, Android app, and iOS app. Check it Out!
(Not able to view intraday yet? Update your Groww app).
Here’s where you can see the option. Let’s see how to short-sell on Groww.
Step 1: Select the company whose stocks you wish to trade. The default order type is ‘delivery’.
Step 2: In the order type, select ‘Intraday’, you can now place a sell order for stocks that are not in your Demat account.
Once you place the order, it would show you the success screen. You can check the order details. Remember, since this is intraday, you will have to square off your position before the end of the trading day.
Salient Features of Intraday Trading
1. Short Sell is Permitted
You might have come across the term short-sell while reading up on stock investing. It is also called ‘going short’. In simple terms, short selling is selling shares that you don’t have in your demat account. In intraday trading, the broker allows you to do this under the promise that you will return the shares back by the end of the trading day.
This is a unique feature of intraday trading since it allows you to benefit from negative price fluctuations.
Usually, when you think about investing in stocks, you look for the ones that are poised to increase in price. However, if you feel that a particular industry/sector/company might be heading for troubled waters and may experience a drop in stock price, you can’t do much with a delivery order. This is where an intraday order helps.
Let’s say that a company ABC Ltd. Has announced a management reshuffle last night. Today, when the market opens and people hear the news, you expect its stock price to fall. As an investor, you want to benefit from this event. If you place an intraday order and short sell the stocks of ABC Ltd. in the morning before the market starts reacting to the news, then you can get a good selling price. During the day, as the stock price falls, you can purchase the same amount of shares at a much lower price and book profits in the bargain.
However, it is important to remember that if the market moves contrary to your expectations, then you can book a loss too.
2. Margin Benefit
When you opt for an intraday trade, you don’t take delivery of the shares in a buy transaction or give shares to the broker in a sell transaction. Since you square-off the transaction by the end of the day, the profits or losses are marginal compared to the stock price.
For example, if you buy 10 shares of ABC Ltd at Rs.1100 per share (total investment of Rs.11000) and sell it at Rs.1150 by the end of the day, your profit is Rs.50 per share or Rs.500 total. On the other hand, if you sell it at Rs.1050, then your loss is Rs.50 per share or Rs.500 total.
In the stock market, to ensure that all trades are honored, the Securities and Exchange Board of India (SEBI) had introduced a margin system. According to this system, all stockbrokers are required to collect a small percentage of the buy or sell order at the time of placing it. The margin percentage is decided by the exchange and is calculated to cover the maximum volatility expected in the said stock.
For example, if the historical records of a share show that the maximum volatility in its price in a single trading day has been +/- 20%, then the margin requirement for the said stock would be 20%. Therefore, if you place a buy order for 10 shares at Rs.100 per share, then you will have to pay 20% of the total purchase price (20% of Rs.1000 = Rs.200) upfront when you place the order. Also, if you place a sell order, you will need to have a margin of Rs.200 available with the broker.
How is the margin calculated?
The stock exchange determines the margin requirement for each stock by calculating the Value at Risk (VaR) and Extreme Loss Margin (ELM).
Hence, if there is a 20% margin requirement on a particular stock, then you will have to pay only Rs.20 to buy a stock of Rs.100. Another way to look at it is that if you have Rs.100, you will be able to buy five stocks instead of one. Here is a quick comparison between delivery and intraday orders with the margin perspective:
|Delivery||100% amount to be paid upfront||No payment needed if shares are held in the demat account|
|Intraday||Margin to be deposited with the broker for both buy and sell transactions|
3. Square Off or Netting of Stock
In the stock market, a position is a binding commitment to buy or sell stocks on an exchange. So, if you place an intraday buy order of 10 shares of ABC Ltd. on the NSE, then you have an open buy position (also called Long Position) that needs to be closed before the end of the day. On the other hand, if you place an intraday sell order of 10 shares of ABC Ltd. on the NSE, then you have an open sell position (also called Short Position) that needs to be closed before the end of the day.
In intraday trading, square off or netting happens as follows:
- For an Open Buy position or Long Position or Positive position – the square off will be a sell transaction
- For an Open Sell Position or Short Position or Negative Position – the square off will be a buy transaction
It is important to note that you can square off the positions yourself before a stipulated time. Failure to do so will trigger Groww’s system automatically which will execute the square off-trade. However, this will be charged. Please visit the updated list of charges to know the current rates.
Here is a quick look at the differences between delivery and intraday positions.
|Exchange||Both BSE and NSE (provided the stock is listed)|
|Long (+ve) Position||You can take a long position by placing an intraday buy order||You can take a long position by placing a delivery buy order|
|Short (-ve) Position||You can take a short position by placing an intraday sell order including a short sell order||You can take a short position by placing a delivery sell order provided you have the said shares in your demat account|
|System square off||Yes||No|
Intraday on Groww
1. Automatic Square Off by Groww’s system during the day before the cut-off time (MTM)
Being your stockbroker, Groww reserves the right to exit or square off your open position during the day if the Mark to Market margin or MTM reaches the following levels:
- If 50% of the margin is being used, then the system sends a warning to add more funds to the margin
- If 80% of the margin is being used, then the system squares off the position
Here is an example:
- Let’s say that your available margin is Rs.1000 and you are planning to buy stocks of ABC Ltd. which has a margin requirement of 20%. Hence, you will be able to purchase stocks worth Rs.5000 against the available margin.
- You make the purchase.
- Next, let’s say that the stock price falls and the value of the shares drops to Rs.4500.
- This means that you are currently having a notional loss of Rs.500 which is 50% of the available margin.
At this stage, Groww will send you a reminder to add funds or square off the position yourself. If you fail to do so and the stock price falls further taking the value of the shares to Rs.4200 or a loss of Rs.800 or 80% of the available margin, then Groww will automatically square off the transaction regardless of the time of the day.
What if the intraday position does not get squared off?
While there is an automatic square off of any open position, if the liquidity of said stock falls to zero, then there can be a possibility of the position not getting squared off. Here are two scenarios:
- Open Buy position or Long Position or Positive position – Square off next day.
- Open Sell position or Short Position or Negative position – marked for auction.
2. Converting Positions: Delivery to Intraday and Vice-versa
You can convert your positions between delivery and intraday as explained below:
Delivery to Intraday
- Buy order – If you have placed a delivery buy order and have an open buy or long position, then you can convert it into an intraday order without having to deposit any more margin
- Sell order – If you have placed a delivery sell order and have an open sell or short position, then you can convert it into an intraday order. Further, you might have to deposit funds towards the margin depending on the stock.
Intraday to Delivery
- Buy order – If you have placed an intraday order and have an open buy or long position, then you can convert it into delivery order. However, since you only pay the margin for an intraday order, you will have to deposit funds to ensure that the total purchase amount is available with us.
- Sell order – If you have placed an intraday sell order and have an open sell or short position, then you can convert it into delivery order. Further, this is allowed only if you have the shares in your Demat account. No additional margin will be required.
Hope this was helpful!
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