Investing in the stock market is among the most sought-after skills, which is why millions of people trade and invest money on public exchanges every day. When starting off as a trader there are two ways in which one can trade: positionally or as an intraday trader. You can either trade (intraday) or you can patiently wait to extract your profits from these in the long term (positional trading). Both of these strategies are commonly practiced in the market with intraday trading being more preferred among traders.
If you are seeking mainly short-term benefits, a form of trading worth trying is intraday trading. In fact, this type of trading involves purchasing and selling stocks as well as other financial instruments within a single trading day. Hence, intraday trading aims to capture the smaller market movements. However, there is another way one can gain through the stock market: positional trading. Positional trading can be placed in between intraday trading and long-term investing.
Positional trading involves carrying overnight positions that are based on risk management, the chosen approach of trading, and the interest time frame. Positional trades involve holding only shares for a timeframe that can be between 1–2 days upto months so that one can book profits. It is completely up to you when you want to exit your position as a trader. The markets are highly volatile and thus intraday trading can appear to be a bit risky to some traders, therefore they choose positional trading because it provides a longer time frame.
Intraday Trading vs Positional Trading
By taking a detailed look at both styles: intraday trading and positional trading, you can learn to pick which style is the appropriate trading strategy for your needs.
As suggested by the name itself, intraday trading involves taking new positions after the opening of the market while also closing those positions on the same day prior to the market closing. As an intraday trader, you are likely to close your position by the end of the trading day, no matter whether it ends in a profit or a loss. Hence, intraday trading aims to make a profit out of the smaller market movements.
Since traders can trade in late positions with high leverage and a very small exposure, intraday trading is widely practiced. In case of trading that is leveraged-based, you are required to exit your position fifteen to thirty minutes prior to the market closing. If one does not exit their position, the broker will automatically square off all positions. When you desire to convert your intraday position into delivery, you need to be paying the complete amount for the same to your brokerage. These procedures must be completed prior to the market closing.
Since it requires that you are active in the entire train session, intraday trading is suitable only for full-time traders. Markets are highly volatile, so if you were to miss out on your target, your portfolio may begin to bleed. The primary advantage intraday affords to traders is trading at high leverage. High leverage or margin trading comes with the benefits of big wins but it also comes with the potential for bigger losses.
In recent years, trading positionally has gained a lot of popularity as it eliminates one of the biggest risks of intraday trading: having to square off one’s position by the end of one’s trading session. Trading positionally allows one to hold their positions as per one’s needs, for one or more days, weeks or months. With positional trading, one’s time frame will not be fixed, but rather, it can be selected based on the nature of one’s trade.
Due to its flexibility in holding positions, positional trading requires a higher working capital but comes with a greater risk-bearing capacity. Depending on who your broker is, you may require 50% or more of your capital as a margin simply to carry future contracts overnight. Higher ranges of positional trading may lead to a greater stop-loss risk. For instance, you can make use of a stop-loss that is worth fifteen to twenty points for your intraday trade of a Nifty Futures Contract. For a positional trade that is long-term, however, you will be required to use a stop loss that is roughly forty to 150 points.
You might have over 20 trades within a week with intraday trading. With positional trading, you will only have two to five short-term positional trades. So basically, you may have over 20 trades in a week with intraday, but with positional trading, you will only be having 2–5 short term positional trades. Based on one’s stop loss, it is evident that one’s risk tolerance might be the same or even lower with positional trading.
When you choose to hold your position from a few weeks to months, this is known as long-term positional trading. As a result of the larger trading ranges, here the risk levels of a stop loss can reach as high as 200 points, while at the same time, one’s rewards will also go higher up — to 1000 points or even more. In fact, it is recommended that one should first get hands-on with intraday trading as well as short-term positional trading prior to stepping into the world of long-term positional trading.
The Bottom Line
The answer about which type of trading is best for you depends on the following factors. If you have low capital affordability, going with intraday trading is a smarter move as positional trading requires a higher capital. Another factor to consider is how much risk you can bear. Intraday is a high-risk trade. If you can accept a high amount of risk, intraday trading may be more suited to you over positional trading, the latter of which involves moderate to high risks. A final parameter is your time frame. A full-time trader who wishes to remain glued to their screen should consider going for intraday trading, whereas someone who wishes to trade on the side or cannot dedicate their entire day to it, can opt for positional trading.