Options Trading VS Intraday Trading: Your Best Ally in Navigating Stock Market
Options and intraday trading are two ways to play the stock market game. Intraday trading is fast-paced, aiming to make quick profits from small price changes. It's like trying to score points quickly in a basketball game.
You might think of options trading and intraday trading to be two sides of the same coin. One yields high returns with measured risks, the other promises fast-paced action coupled with reflex decisions.
But who do you, as a beginner, turn to?
We compare these two options in this blog to help you find the best one for you.
Let's get started!
What is Options Trading?
These are a derivative contract between two entities: the seller and the buyer. This contract involves the buyer making a non-refundable token advance to the seller and thus agreeing to buy an asset on a future date.
The buyer is at liberty to exercise the contract on its date of expiration. This privilege is given to the buyer on the equivalence of a premium advance that had been paid earlier.
In either of the logistics of the contract, the seller earns the options premium and is bound to perform the contract.
Options Trading: Benefits
Options trading brings numerous advantages to the buyer and the seller. Here are some of the top benefits.
1. Options buyers have a huge upside to the contract since they can enjoy a full profit if the price of the asset increases.
2. Buyers can limit their trading risk by paying the seller a premium if the asset’s price falls below the agreed-upon price.
3. As the options contract expires on a fixed date, the seller can keep the premium and generate profit.
4. It does not require a huge financial commitment from the buyer, as anyone can join the trade with an options premium.
5. Sellers can collect premium amounts when entering into the contract and keep them regardless of what happens to the contract.
Options Trading: Demerits
Some of the critical ones are as follows -
1. This is a high-risk strategy that should be used with immense care and proper trading signals.
2. As the date for the execution of the contract comes the value of options contract might decline. It happens to reduce the chance for the buyer to get the contract executed.
What Is Intraday Trading?
Intraday trading occurs when one buys and sells stocks all within the same day. The yields are garnered from the fluctuations in the price of stock indexes.
Intraday trading is when a trader finds the target price of the stock with the various market factors. They hold the perspective that the stock will be sold at a higher price for a profit.
For intraday, firstly you need to open a trading account, and when purchasing the stocks, you need to mention the same buying for intraday purposes.
Intraday Trading: Advantages
Intraday trading is one of the best trading practices in the world due to a host of advantages.
A few of the notables are stated below:
1. Investment in the stock market using intraday trading requires no big amounts. The strategy is based on high risk and high rewards, thus you can also earn big profits by investing small.
2. You make small investments and can earn handsome profits since there is the availability of the margin facility in intraday trading.
3. No need to be worried about overnight risks such as the ones in other long-term or short-term investments.
As the trade closes within the day, one can even utilize bullish and bearish stock market sentiments with intraday trades to earn excellent profits.
Intraday trading has become ultra-convenient now that traders can easily trade using mobile apps, algotrading, etc.
4. Intraday trading allows traders to compound their profits. They can also reinvest their earnings in the market.
Intraday Trading: Limitations
Though the advantages of intraday trading are plenty, it is also riddled with risks and associated disadvantages.
Following are some of the major disadvantages of intraday trading:
1. Intraday trading is highly risky and stressful. Because everything happens in a rush, the traders may have no other alternative but to enforce decisions that are often emotionally driven.
2. Intraday trades are associated with high transaction and platform costs. These charges can significantly bring down the profit margin.
3. One prime drawback in this form of trading is that the traders may not have enough time for research. This can result in loss.
4. Intraday trading can keep you hooked and affect you. In the absence of proper strategies, loss of trade can land you in conditions of stress and distress.
Options Trading vs Intraday Trading: How to Choose?
Options trading and intraday trading are great money-making ideas in the stock market. However, these are not everyone's cup of tea. Careful attention should be given, and an individual choice should be exercised with discretion.
Here are a few important concepts that will guide you in choosing the better alternative.
1. If you are not ready to put much money into trading, options trading is the best option. If you have more money to invest, then intraday trading is suitable for you.
2. One has to choose options trading if he hasn't time to invest in doing research, following the stocks, etc.
3. Intraday trading is the best option if one is willing to earn profit by taking much risk.
Choose options trading that offers maximum benefits with limited controllable risks:
Intraday trading is suitable for players who focus on making profits from market volatility and liquidity.
Conclusion
Choosing the right trading strategy has a huge impact on the profits you will make from stock trading. Picking one strategy and going all the way in to learn everything about it can make you a master of that strategy. You also need to pick the best share trading platform to get all the help you need.
Powered by cutting-edge algorithms, Stratzy is one of the platforms in the market. It brings you the latest industry news and insights to help you make the right trading decisions, all the time.Download the app and explore its features with a free plan.