Intraday trading, as the name suggests, means trading or buying and selling of shares on the same trading day. At the end of a trading day, such buying and selling results in a net position of zero. In this form of trading, you can buy or sell a position or buy back a stock that is sold before the end of day. Any profits or losses in intraday trading are therefore credited or debited on the same day. However this may not be reflected in your Demat account.
You get 5 hours to receive a credit corresponding to the profits made, provided each intraday transaction is closed by the broker. In absence of such closure, it can result in losses. Therefore, it is important to ask your broker to claim the profits within the timelines.
Securities and Exchange Board of India (Sebi) has established new rules on intraday trading effective from 1st March 2021. The new guidelines say that any funds that are generated from intraday trading are available for use only after the stock exchanges close on the following trading day. This means that you cannot use your intraday gains for any other trade on the same day as the intraday earnings will be credited in your account only at the end of the following working day.
To better understand how intraday profits are credited, let us have a look at how intraday transactions take place.
Buying and selling a stock in intraday trading
Day 1 – Trade day (T Day), Monday
Let’s say you bought 100 shares of a company XYZ at Rs.1,000/- per share on Monday. The total value of this buy transaction will be Rs.1,00,000/- (100 * 1000). The day on which you made this transaction is known as the ‘trade date’ or ‘T Day.
At the end of the T day, your broker would have debited Rs.1,00,000/- along with the applicable charges for the purchase. Suppose the applicable charges amount to Rs. 103 for the transaction.
Thus, the total debit amount in your trading account will be :
Rs.100,000/- + Rs.103 = Rs.1,00,103
The effect of the transaction will be reflected in your account on the same day as the transaction. It is important to note that while the funds go out of your account; the stocks do not come into your DEMAT account on the same day.
On the trading day, the broker will issue a ‘contract note’ to you. It acts as a bill to reflect details of all the transactions made by you. It includes break up of all transactions and charges of the day along with the trade reference number.
Day 2 – Trade Day + 1 (T+1 day, Tuesday)
In Intraday trading, the next day of the transaction is known as the T+1 day. On this day, you can choose to sell the stock purchased on the previous day. If you decide to sell it, you will be making a quick trade, also known as “Buy Today, Sell Tomorrow” (BTST).
Note that the stock will still not be in your DEMAT account on T+1. Thus, the risk involved here is that you will be selling a stock that you don’t actually own. However, every BTST trade may not land you in trouble unless you are dealing in illiquid stocks.
From a regular trader’s perspective, nothing special should be expected on T+1 day. However, technically, the funds required for buying the shares are collected by the stock exchange, including the exchange transaction cost and security transaction tax.
Day 3 – Trade Day + 2 (T+2 day, Wednesday)
T+2 day is day 3 of the transaction, on which shares will be debited from the account of the person selling the shares and credited to the broker account via whom the trade has been entered. The broker will then credit it to your DEMAT account at the end of the day. Parallelly funds that were debited from your account are credited to the person who sold you the shares.
Thus, 100 shares of Company XYZ shares will reflect in your DEMAT account.
In summary, if you buy shares on T Day, you can receive the same in your DEMAT account at the end of T+2 day. The shares will therefore be available for transaction on T+3 day.
What happens when you sell a stock in intraday trading?
The day on which you sell stocks is also called trading day or ‘T Day’. As soon as you sell the stock from your DEMAT account, the stock is blocked. The blocked shares will be given to the exchange before the T+2 day. On T+2 day the funds from the sale will be credited to your trading account post deduction of all applicable charges.
How does the new rule on intraday profit impact traders?
From the example in the above section, suppose you decide to sell 100 shares of company XYZ at a price of Rs. 1,300 on T day. The value of this transaction will be 100*1,300 = Rs. 1,30,000. Since your buy transaction value was Rs. 1,00,000, your profit from intraday trading will be:
Rs. 1,30,000 – Rs. 1,00,000 = Rs. 30,000.
Here are a few scenarios to understand the availability of profits from intraday trading:
T day is a weekday
As per SEBI’s regulation, the intraday profit of Rs. 30,000 will be available on T+1 day itself. Here T is Monday, so T+1 is Tuesday. Thus, your intraday profit will be available for use on Tuesday, at 3.30 p.m. post market close.
T day is a Friday
If the T Day in the above transaction is a Friday, your intraday profits from the T day will be available at the end of the T+1 working day, which means the Monday of the following week.
If T+1 happens to be a market holiday, the profits will be available for use on the next working day.
Beginners can start intraday trading with small amounts to gradually increase the value of investment as they gain experience. It is important to make use of fundamental and technical analysis to aid decision making while trading in the stock market. Investors must carefully weigh their risk-return appetite before investing in stocks.
As per new SEBI regulations, intraday profit is available for use only on T+1 post market close. This could be the reason why traders do not see their profits credited on trade days.
Intraday trading allows investors to gain higher leverage through larger positions using small margins. By defining stop loss at the time of placing an order, investors can hedge against the risks.
The market trend can help in determining the movements of selected stocks. This is an easy way to maximise profits from intraday trading. Investors must invest in a stock that has the potential to grow while the market is bullish and vice versa.
News sensitive scrips are stocks that tend to easily react to positive or negative news in the market. It is easier for investors to pick stocks by following their movements that are mostly triggered by news.
One of the easiest strategies that beginners can adopt in intraday trading is to invest in stocks that are correlated to the index or industry performance. Since one can track the industry or index performance easily, it becomes easier to decide on buying or selling of such stocks.