Intraday Trading, Enhance or Extinct?

Intraday trading has become a significant product over last few years. Not only have there been strategies and products built around it over last few years also there have been a large number of people who have given up their regular jobs to do this. For, cash market where delivery marking is anywhere in the range of 35% to 45% depending on the market situation, intraday trading is a huge activity.  In-case of derivatives this number is even higher. The cost of an intraday trade is a fraction of the value of the transaction. Lot of small and mid-sized brokers survive due to the sort of leverage the provide to their clients.

However, things are about to change. Exchanges have asked stock brokers to mandatory collect the entire initial margin before a trade from clients, even for transactions that are not carried forward to the next day. This means that, for a stock, you would need VAR+ELM margin (~12.5%) to take a trade. Hence the maximum intraday leverage that can be provided by any broker is this requirement of 12.5% or 8 times Basically, the clarification says that the entire initial margin — which is SPAN + Exposure for F&O, and VAR+ELM for equity, has to be collected upfront before taking a trade, even if it is an intraday trade

The impact of this would be as follows:

1. Intraday Option Selling/Expiry Trading honey moon period may be over.
2. Weekly Options craze may come to an end.
3. Penny Option Sellers may be out of the industry.
4. Option Selling shady fund management may come to an end.
5. Liquidity will be impacted in Futures & Options.
6. Bid Ask spread will widen.
7. Traders may be forced to move to Monthly Options in Stocks and Indices.
8. System traders may need to rethink / rewrite strategies.

All such changes hurt the structure in the short term, eventually new ways are invented to improve efficiency and returns in the system. So, what may the way going further.

1. Resources, especially capital needs to be utilized extremely carefully.
2. Strategies should be well thought off with a better risk – reward perspective.
3. Updating and training oneself will be extremely crucial.
4. Initially, one needs a hand holding from experienced people in understanding trading.
5. Set returns expectations right.
6. Be extremely nimble footed with your trades; with the limited capital try to optimize returns as much as possible.
7. Try to use stocks as much as possible for margin requirements.

While in case, if you would like to know more about the scope, USP & benefits of trading in F&O Market then Attend our FREE Seminar today!

Cheers.