Sonith ManakkatIntraday trading is one of the most talked-about styles of trading, and one of the least understood. This part explains what the words mean, how leverage and costs work, and what the risks are, in plain language with illustrative numbers. Each section also has an Expert view. It is general education only and does not suggest that anyone should or should not trade.
What intraday means
An intraday position is opened and closed within the same trading day. Nothing is held overnight. A position simply means an amount of something you currently own or owe through trading.
Investing
- Holding for months or years
- Focus on what a business or product is expected to do over time
- Fewer transactions, so costs are spread out
Short-term trading
- Holding for minutes or hours
- Focus on small price movements within the day
- Many transactions, so costs add up
Square-off
Square-off means closing an open position by doing the opposite trade. If you bought, you sell the same quantity, and the position is flat again. In general terms, a broker may close positions that are still open at the end of the session automatically, whether or not you wanted to, and it may charge a fee for doing so. Rules and timings vary between brokers and markets, so the exact policy is something to read in the broker's own terms.
Leverage and margin
Leverage means controlling a larger position than your own money would normally allow. The broker asks for a deposit called margin, which acts as security, and lends the rest.
- 1,000deposit, illustrative
- 10,000position controlled, illustrative
- 10xleverage in this example
Gains work in the mirror-image way, but there is no reason to expect the price to move in a particular direction, and losses are equally likely to be magnified.
- First 2 percent fall A loss of 200, one fifth of the deposit.
- Next 3 percent fall After a 5 percent fall the loss is 500, half the deposit.
- Last 5 percent fall At a 10 percent fall the loss is 1,000, the whole deposit, and a further fall is a loss beyond it.
Takeaway. Losses are counted on the full position, so a small deposit goes quickly.
Expert viewMargin and mark-to-market
Mark-to-market means revaluing open positions at current prices, usually throughout the day, so that gains and losses are reflected in the account straight away rather than only when you close. Brokers set initial margin to open a position and a lower maintenance margin level. If losses push the account's equity below the required level, the broker issues a margin call, asking for more funds, or may close positions without waiting. Required margin can change quickly when markets become more volatile, so a position that was comfortable can suddenly need more security.
Why leverage raises the risk of ruin
- LeverageA small deposit controls a large position
- A small adverse moveA few percent against the position
- A large loss relative to the depositThe deposit shrinks quickly
- Forced closingThe broker may close the position, locking in the loss
Expert viewRisk of ruin
Risk of ruin is the chance of losing so much that you cannot continue. Leverage raises it because the same price move takes a bigger share of your capital, so fewer adverse moves are needed to reach a point of no return. It also shrinks the room for ordinary day-to-day fluctuation: a move that would be a small wobble unleveraged can trigger forced closing when leveraged. Losses that exceed the deposit are possible, particularly when prices jump past a level without trading in between, which is called a gap.
- Opened to In progress A deposit is held against the position.
- In progress to Closed by you You do the opposite trade, and the position is flat.
- In progress to Margin call Equity falls below the required level, and more funds are requested.
- In progress to Auto square-off A position still open at the cut-off may be closed automatically, perhaps with a fee.
- Margin call to Forced close The broker may close the position without waiting.
Takeaway. A position ends by your hand, at the cut-off, or by the broker, and the last two are not your price.
Costs add up
- FeesCharges per trade, which differ by broker and product
- TaxesLevied on transactions or on gains, with rules that depend on where you live
- SpreadThe gap between the buy and sell price
- SlippageThe difference between the price expected and the price obtained
Each trade carries these costs whether it ends in a gain or a loss. Trading often means paying them often.
Expert viewTransaction cost drag
Suppose, illustratively, that the total cost of one round trip (buying and selling) is 0.20 on a position of 100, which is 0.2 percent. If you make 5 round trips a day for 20 trading days, that is 100 round trips, and the cost is 100 x 0.2 percent = 20 percent of the position size, before any price movement at all. Prices would have to move favourably by that much just to cover the costs. This is a simple illustration of why frequent trading makes costs matter more, and the real figures depend on the product, the broker and taxes.
Time pressure and emotions
Everything happens fast within a day. Prices move every second, news arrives, and a position must be closed by the end of the session. That pressure can make people act on impulse: closing too early from fear, holding on to avoid admitting a loss, or trading more to try to recover. These reactions are human and common, which is why many people write down rules for themselves in advance.
Intraday trading is just quick, easy action
It is a demanding activity that needs attention for the whole session, and costs and leverage make losses easy
A small deposit means a small risk
A small deposit can control a large position, so the possible loss can be many times the deposit
A generic trading day
- Before the session
Check the news, the account balance and the margin required
- Opening
Busy, with larger price movements as orders arrive
- Mid-session
Quieter, with movement driven by news and order flow
- Approaching the close
Open positions must be closed, or may be closed automatically
- After the close
Review costs, fills and what went differently from plan
Expert viewExecution quality
Execution quality is how good the fills are compared with what was possible: the size of the spread paid, the amount of slippage, how quickly the order was filled, and how often it was filled at all. It depends on the type of order used, the depth of the book at that moment, the broker's routing and your own order size. Measuring it means comparing each fill with a reference price from the moment of the order, and averaging over many trades rather than judging one.
Questions to ask before you start
This is a checklist for thinking, not a recommendation to trade.
- Do I understand the product?How it works, how it is priced, and what its costs are
- What is the most I could lose?Including the case where it exceeds the deposit
- Can I afford that loss?Money you need for living costs is not money to risk
- What are all the costs?Fees, taxes, spread and slippage
- Do I have the time and calm?Can I follow the market and act under pressure
Before asking how much could be gained, ask how much could be lost.
Frequently asked questions
Does intraday mean low risk because nothing is held overnight?
No. Prices can move sharply within a day, and leverage can magnify those moves into large losses.
Can I lose more than I deposited?
With leveraged products it is possible, depending on the product and the broker's terms.
Why do costs matter so much?
They are paid on every trade, so the more often you trade, the more they take from the outcome.
Is intraday trading the same as investing?
No. Investing usually means holding for a long time, while intraday means closing everything the same day.