What is Intraday?

Intraday trading is like two different vendors trading with each other at a flea market…

Both vendors will probably have their own speciality, like kitchen accessories or autoparts. They might then want to trade with one another in the hopes that they can sell the goods they see as more valuable during the day’s market. Intraday trading works kind of the same way. You buy a position at one point in the day and become a shareholder — but when share prices hit a certain point, you’d exit that position and sell your shares again before the day is done.

Intraday means “within the day.” It’s a shorthand term that’s often used to describe securities like common stock or exchange-traded funds (ETFs) that are traded over the course of a single day during normal trading hours.

Traders also use “intraday” to describe the peaks and troughs of a security’s share price during a given trading session. For example, if a common stock’s or a fund’s share price reaches its highest value of the day, analysts would describe that price level as its “intraday high.”

Short-term traders often attempt to benefit from these small price fluctuations by buying shares of a security at one point in the day when they believe the share price is low. The trader will then often turn around and sell those shares back onto the stock market before the closing bell. If the price of shares increases before the trader closes their position, the sale generates a profit. This type of trading is often referred to as intraday trading or day trading.

Intraday trading is a strategy that investors use to try and create profit from the changes in share prices that occur within the course of a single trading session. Intraday trading is also commonly known as day trading.

In theory, intraday trading is quite simple. After trading begins for the day on a given stock market, an intraday trader identifies the best stocks they believe are currently priced low but will hopefully increase in value by the end of the day. The trader will then take out a position on that security (buy a number of shares) and then keep a close eye on how its price changes throughout the day.

When the stock price reaches a certain target for that day, or the trader thinks the price reached its intraday high, they’ll then close their position by selling the shares back onto the market. If the trader was able to sell the shares for more money than they bought them for (including any transaction fees), that means they’ve generated a profit for the day.

In practice, intraday trading can potentially be a lot trickier than it sounds. It can also be a high-risk investment strategy.

In order to make sure the new positions are closed when a stock is nearing (or has reached) its intraday high, day traders have to pay incredibly close attention to all of the price movements during trading hours. That means they need access to real-time charts. Short-term traders often check intraday price charts down to the minute.

Just how closely traders check those changes and how they react will depend on the intraday trading strategy they’ve chosen. For example, intraday scalpers use either one-minute or five-minute price charts for very high-speed trades. These high-speed trades tend to mean a stock’s price has a shorter time frame to jump up or down. That could mean less profit at the end of the day, but it also means there’s less of a risk the trades will lose big.

In addition to stock market price charts, intraday traders often rely on news reports to pin down sources of market volatility that could impact the value of their positions.

Traders also look at support and resistance levels to try and guess which way a security’s price is headed. Support represents a stock’s lower price movements over time, and resistance is when a stock reaches a gradual high.

Day trading is high-risk, as no one can predict the short-term (or long-term) movements of the prices of stocks. It should not be attempted by novice traders. All investment carries risk.

There are four main intraday trading strategies that some investors use.

Scalping is one of the most common strategies. Scalping is when you make multiple small trades each day to turn a profit on tiny price fluctuations.

A range trading strategy is when you use a security’s support and resistance levels (which show when share prices are starting to go up or down, respectively) to pick stocks to buy or sell.

A news-based trading strategy is when a trader closely monitors new events and how they impact markets. When a news event starts to affect a security price, a trader will try to capitalize on price changes to generate a profit.

High-frequency trading is a strategy that uses a number of complicated algorithms (mathematical formulas) to make a profit as a result of tiny or short-term market inefficiencies or anomalies.

Intraday is often considered to be the opposite of interday.

Intraday is a term used to describe price fluctuations that occur during trading hours within a single day. That means intraday traders take out a position after trading on a market has started for the day, and then they close that position by selling the shares again before the closing bell.

Interday trading describes trading that occurs over the course of more than one day. Generally speaking, interday traders will take out a position by purchasing shares at some point during trading hours. When the markets shut, the trader will hold that position overnight until trading resumes the following day.

An interday trader might decide to keep their position overnight and then sell as soon as trading begins the following day, or they might decide to hold that position for a couple of days. Instead of using price fluctuations that occur every five-to-10 minutes to guide trading decisions, interday traders tend to look at price trends that occur over one-to-four days.

Interday trading is sometimes referred to as “swing trading” because it relies on longer price swings to generate profit.

Intraday trading and day trading are the same thing. Intraday is financial shorthand for “within the day,” and intraday trading is when an investor takes out a position on a security and then exits that position within trading hours on the same day.

Because all of that activity takes place over the course of a single day, “intraday trading” is often shortened to “day trading.”

There are a few different intraday trading formulas that traders use to try and assess when they should take out or close a position. The most popular formula is the pivot point theory.

The pivot point theory is a formula that tries to guess how a stock is going to move based on its performance the previous day. The formula for the pivot point theory works like this:

Intraday High (H) + Intraday Low (L) + Closing Price (C) = X.

After finding X, you then divide that value by 3 to find your pivot point (P). Finally, multiply your pivot point (P) by 2.

If a stock is trading above its pivot point, the pivot point theory predicts the price will go on to rise until it hits its first resistance level and is nearing its second resistance point. Resistance is when an uptrend temporarily levels out and a share price stagnates.

No one can predict the future movements of stock prices..

Intraday traders are subject to more financial regulations than ordinary, long-term investors. That’s because day trading involves more risk than ordinary trades. These extra rules are enforced by the Financial Industry Regulatory Authority (FINRA), but they only apply to “pattern day traders.”

FINRA defines a pattern day trader as anyone who carries our four or more day trades within a five (business) day rolling period. Those four or more trades must also represent over 6% of that individual’s total margin account trades for that five day period.

That being said, FINRA’s parameters for what constitutes a pattern day trader are a bare minimum. The U.S. Securities and Exchange Commission (SEC) also advises that some brokers and dealers will identify a customer as a pattern day trader if they have the intent to carry out more than four trades within a week (even if they haven’t actually made a trade yet).

Under FINRA regulations, pattern day traders must fulfill a minimum equity requirement. This requirement is that the customer (or investor) has at least $25,000 put into their account before making any day trades. That minimum amount of money needs to be maintained at all times. If the customer’s account falls below $25,000 equity, that individual isn’t allowed to day trade.

There’s also a rule on day trading buying power. Pattern day traders are only allowed to trade up to four times the value of their maintenance margin excess (the minimum amount of equity an investor has maintained in their margin account after making a purchase) at closing bell the day before. If a trader breaks this rule, their broker-dealer is required to issue a day trading margin call. A day trading-related margin call is when a trader uses more money than they’ve got in their brokerage account, and the broker demands that money be paid back.

Under FINRA rules on intraday trading, investors have five business days to meet their margin call. During that period, they’re only allowed to carry out trades two times their maintenance margin excess. For example, let’s say a broker makes a margin call on an investor’s account and their maintenance excess is $30,000. The investor can continue to trade for five days before settling the margin call, but those trades will be capped at $60,000.

If the trader can’t meet their margin call by the fifth working day, the trading account will be restricted to transactions on a cash-available basis only for 90 days (or until the call is met). That means they can only trade using cash in their account, and can’t borrow funds.

Intraday trading is a strategy that some investors choose to use, but it comes with several pros and cons.

One advantage of intraday trading is that the positions of day traders aren’t affected by overnight news. Sometimes a big overnight development will create volatility and eradicate the value of a trading position by the opening bell the following morning. When an investor is closing their positions at the end of each day, their positions are not affected by overnight news (good or bad).

Another reason some people choose to day trade is that it has the potential to generate big rewards. That’s because day traders use margin accounts, which means they’ve got more leverage (or borrowed funds) with which to trade.

But there are plenty of disadvantages, too.

Because day trading relies on price changes that occur within a matter of hours, there’s no guarantee share prices will increase by enough to generate a large profit. By contrast, day traders may also sell calls, short stocks, or buy puts because they’re wanting prices to go down. There’s no guarantee prices will go the way traders want them to, and so there’s a risk of generating losses.

Day trading also often adds in the element of margin risk. Intraday traders typically use margin accounts to borrow so that they can take out more short-term positions. But if the market goes the wrong way, that trader will have the responsibility or repaying that margin at an even greater loss.

Intraday trading also typically means higher commission costs for investors trading through a broker because day traders open and close positions so quickly.

There are several things investors will need to start intraday trading.

First and foremost, they’ll need sufficient capital. Day traders rely on risk capital (which is funding reserved for speculative activities like high-risk trading) they can afford to lose. That’s why FINRA has a capital requirement of $25,000 for all investors wanting to take part in regular day trading.

If someone wanted to start day trading, they’d also likely need access to a margin account to protect against sudden margin calls. With a margin account, traders will have added flexibility because they can use borrowed funds.

To start day trading, it’s also advisable to go in with a firm strategy and a knowledge of the market and stock exchange. Because day traders rely so much on price trends and charts, they’ll want to have a grounded understanding of market technical analysis.

Finally, intraday traders need to have time on their hands. To be an effective day trader, investors must pay very close attention to price fluctuations and be ready to act at short notice. That’s why many day traders are professionals that devote their entire working day towards analyzing price changes and making trades.

Margin borrowing increases your level of market risk, as a result it has the potential to magnify both your gains and losses.

Regardless of the underlying value of the securities you purchased, you must repay your margin loan. Robinhood Financial can change their maintenance margin requirements at any time without prior notice.

If the equity in your account falls below the minimum maintenance requirements (varies according to the security), you’ll have to deposit additional cash or acceptable collateral. If you fail to meet your minimums, Robinhood Financial may be forced to sell some or all of your securities, with or without your prior approval.

For more information please see Robinhood Financial’s Margin Disclosure Statement, Margin Agreement and FINRA Investor Information.