Intraday Trading, Auto Square Off and Stop Loss

Hello Readers, Understand the meaning of Intraday Trading and its Associated terms in this feed.

Meaning of Intraday Trading

Intraday trading is a form of trading in which position is square off (Settle - "Buy Order with Sell Order" and "Sell Order with Buy Order") before the closing of day's trading session. It is more riskier than investment and required technical skills and attention of trader through out the trading session. Intraday trading is done based on the movements of security and difference between buy and sell price is booked by the traders. Securities are not transferred in Intraday and whatever the profit or loss happens in trading session, Trader has to bear the same.

Characteristics of Intraday Trading

In Intraday trading, trader can place any order either of buy or sell. All the buy order have to be square off (settle) with equal quantity of sell order before closing the trading day. On the other hand, All the sell order have to be square off (Settle)  with equal quantity of buy order before closing the trading day.

Auto Square-Off

Auto Square off is done by Broker when Trader didn't do by himself by the end of trading session. Let us understand this with an example-

John is a trader and buy 100 shares @ Rs 500 each of ICICI Bank at 11:15 AM in the morning. After this purchase, ICICI Bank share price goes down, John believes his trade and expected that Price will rise above Rs. 500 by 3:15 PM (Square off Time). Due to any reason (waiting for expected price or left the trading terminal) John could not place Sell order of 100 shares of ICICI Bank by 3:15 PM, in this case his Broker automatically place a Sell order at the prevailing market price and square off John's position. John may be profitable or in loss and it depends on the market price at 3:15 PM at which his position is square off. If settlement happens above Rs. 500 then John will earn a Profit or Vice Versa.

Importance of Stop Loss

Stop Loss order is placed to secure the capital loss at a certain price by squaring off the position. It is very important to place limit Let us understand this with an example-

Roy placed a buy order of 100 shares of ABC Ltd @ Rs. 200 each. Roy want to sell these 100 shares at profit, which means Roy want to square off his position at a price above Rs. 200 to earn profit. However Roy understands that the market is volatile and he want to restrict his loss in averse situation. Roy placed another order to sell @ Rs. 193 with a trigger price @ Rs. 194.  It means when price in the market touches Rs. 194, Stop Loss order of Roy gets activated and shares will be sold @ 193 if price in the market goes below Rs. 193.
Here Roy has a capacity of bearing loss up to Rs. 7 (Rs. 200 - Rs. 193)  and this loss is restricted by placing the Stop Loss Order.