InvestorQ : Is it true that I can punch above my weight in intraday trading?
vaishnavi mhatre made post

Is it true that I can punch above my weight in intraday trading?

Ria Jain answered.
3 years ago
Intraday trading constitutes a large chunk of daily trading on the NSE and the BSE. Intraday trading involves initiating a position and closing out the position on the same day. Since Indian markets operate on a rolling settlement basis, if you cover your position on the same day, then it does not result in delivery. The profit or loss is either credited or debited to your trading account with the broker.
The reason intraday trading is popular is that it allows you to leverage. Let us understand this little better. If you have Rs.20,000 available with you then you can buy 100 shares of Hindalco at the CMP of Rs.200. But, if you want to close this position intraday, then the broker will allow you to take a larger position. For example, if your broker allows you 5X leverage then you can buy 500 shares of Hindalco by putting a margin of Rs.20,000. You have effectively leveraged yourself 5 times.
Now there are two scenarios that are possible. In the first case, let us assume that the stock price of Hindalco moves up from Rs.200 to Rs.204. You sell the 500 shares of Hindalco and pocket the profit of Rs.2000 (500x4). This profit gets added to your margin account and your end-of-day margin will stand at Rs.22,000. On the contrary, if the stock moves down to Rs.197, then you will trigger a loss of Rs.3 and close the position. The loss of Rs.1500 (500x3) will be debited to your trading account and your EOD margin will be Rs.18,500. Remember, leverage is a double-edged sword and it works both ways. Be prepared for that!