What Is Intraday?

Intraday literally means "within the day." In the financial world, the term intraday is shorthand used to describe securities that trade on the markets during regular business hours, such as stocks and exchange-traded funds (ETFs), and their highs and lows throughout the day. Intraday price movements are particularly important to short-term or day traders looking to make many trades over the course of a single trading session, settling all their positions when the market closes.

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Intraday

The Basics of Intraday Trading

Intraday is often used to refer to the new highs and lows of a security. For example, "a new intraday high" means a security reached a new high relative to all other prices during a trading session. In some cases, an intraday high can be equal to the closing price.

Traders pay close attention to intraday price movement by using real-time charts in an attempt to benefit from the short-term price fluctuations. Short-term traders typically use one-, five-, 15-, 30- and 60-minute intraday charts when trading within the day. Typically, one- and five-minute charts are used for scalping, and 30- and 60-minute charts are used for intraday trading hold times of several hours. Volume weighted average price (VWAP) orders are often used on an intraday basis to increase trade execution efficiency by giving an order exposure to a variety of prices throughout the trading day.

Intraday Trading Strategies

Traders use numerous intraday strategies. These strategies include scalping, which attempts to make numerous profits on small prices changes; range trading, which essentially uses support and resistance levels to determine buy and sell decisions; and news-based trading, which typically seizes trading opportunities from the heightened volatility around news events. High-frequency trading strategies that use complex algorithms to exploit small or short-term market inefficiencies typically operate on an intraday basis.

Advantages and Disadvantages of Intraday Trading

The biggest advantage of intraday trading is that positions are not affected by the possibility of negative overnight news that has the potential to materially impact the price of a security, such as key economic and earnings reports, as well as broker upgrades and downgrades that occur either before the market, opens or after the market closes.

Trading in an intraday basis offers several other key advantages: the ability to use tight stop-loss orders (the act of raising a stop price to minimize losses from a long position) and increased access to margin (and hence, greater leverage). It also provides traders with more learning opportunities. Disadvantages of intraday trading include insufficient time for a position to see increases in profit (or any profit at all), and increased commission costs due to trading more frequently.

Pros

  • Positions are unaffected by risk from overnight news or off-hours broker moves.

  • Tight stop-loss orders can protect positions.

  • Regular traders have access to increased leverage.

  • Numerous trades increase hands-on learning experience.

Cons

  • Frequent trades mean multiple commission costs.

  • Some assets are off-limits, like mutual funds.

  • There may not be sufficient time for a position to realize a profit before it has to be closed out.

  • Losses can mount quickly, especially if margin is used to finance purchases.

Intraday Pricing and Mutual Funds

Intraday trading is essentially off limits for mutual funds, which are designed for the long-term investor and can only be bought and sold through a broker or the fund's investment company. A mutual fund's price posts only once, at the close of the trading day. This price is known as the net asset value (NAV) and reflects all of the intraday movement of the fund's assets, less its liabilities, calculated on a per-share basis.

So, mutual funds do not offer intraday pricing, as their assets fluctuate in market value and their managers make buy and sell decisions all day. However, ETFs—their passively managed cousins—are priced according to their intraday market value. during a trading session. In some cases, an intraday high can be equal to the closing price.

Key Takeaways

  • Intraday is shorthand for securities that trade on the markets during regular business hours, and their price movements.
  • Day traders pay close attention to intraday price movements, timing trades in an attempt to benefit from the short-term price fluctuations.
  • Scalping, range trading, and news-based trading are types of intraday strategies used by traders.