How to calculate profit in intraday trading?

profit intraday trading

There are thousands of day traders executing intraday strategies to earn profits daily. Intraday trading works on the opportunities provided to the day traders on price changes for a given asset. 

 

Trading on these minor price changes on a day-to-day basis is called intraday trading. As these changes are very minor and also because they need to be executed within the day, the trader has very limited time to make decisions. 

 

Day trading can be profitable if it is done with the right knowledge and not just by following ongoing trends. Traders need to isolate the market trend noise surrounding them to make informed and data-driven decisions. 

Profit calculation for intraday

Traders who have a good knowledge of the market know that markets have certain charges apart from the basic profit/loss they are facing. Sometimes newbies tend to not know about these extra charges and miscalculate the profits that were to be made. 

 

Profit calculation is not just the difference between the buy and sell price. Though there isn’t much calculation in intraday trading, apart from the basic profit, there are several other charges deducted from your profits. 

 

Let’s look at what these other charges are

  1. Brokerage
  2. Transaction charges
  3. GST on brokerage
  4. STT
  5. Sebi Fee
  6. Stamp duty

 

Let’s look at the calculation that follows with an example. Here we consider that the trader has bought a lot (1 lot = 20 quantities).

 

Buy price = Rs 20,000

Sell price = Rs 20,010

Charges

Amount

Calculations

Basic Profit

200

20*(20010-20000)

Brokerage

40

20 (buy)+20 (sell)

Exchange transaction charges

15.20

(20*20000)+(20*20010)

GST on brokerage

7.2

18% on Rs.40

Stamp duty

24.006

0.003 * ((20*20000)+(20*20010))

Securities Transaction Tax

40.02

0.01% * (20*20010)

SEBI Fee

1.60

0.0002 * ((20*20000)+(20*20010))

Total Profit

71.98

=Basic Profit – (Sum of charges)

= 200-128.02

 

This is how the total profit calculation is done for intraday trading. 

 

Now let us look at the income tax surrounding these profits made. 

Income tax on intraday trading

Intraday trading income is considered as a business income rather than capital gains. The business income from a speculative business is also added to your income and hence taxed as per the tax slab rate. 

 

Also, any loss that you incur from a speculative business such as trading can be offset against profits from the same business. 

 

As per the new tax regime, taxation is unchanged for the first two slabs.

<2.5 lakh 

Nil

2.5 lakh – 5 lakh

5%

10 lakh – 12.5 lakh

25%

5 lakh – 7.5 lakh

10%

7.5 lakh – 10 lakh

15%

>15 lakh

30%

How to make profits in day trading?

The correct way of starting day trade is by learning the basics and following the rules one sets for himself. The strategies one uses in day trading should be strictly followed by a day trader to make profits in intraday trading. 

 

Aim for profits just above the price high in the current trend in an uptrend or long position. Whereas in a downtrend or short position take profits slightly below the former low in the current trend. 

 

Many traders face a hard time between trend trading and range trading, and even setting the right entry and exit strategies and adhering to them. One needs to be very focused on these choices to earn profits in intraday trading. 

 

One of the key pieces of advice to make profits will be not to enter markets when they stall. 

 

Markets are not always in a trend, sometimes intraday trends can go in the reverse direction as well and in such cases, the overriding direction can be hard to establish. 

If there is no noticeable change in prices with major highs and lows then the intraday movements should be large enough for the profits to exceed the risk. 

Key points to remember while day trading 

Some of the points that help a day trader make profits out of intraday trading are as follows: 

 

  1. Research work is the initial and very crucial step in trading. It is a step that you don’t want to miss while doing intraday trading. A step-by-step approach should be followed by traders when researching stocks to invest in. 
  2. These steps might involve conducting intensive research on stocks you buy to identify if they pass your checklist and qualify for being traded. 

 

This checklist can include points like being a liquid stock, which should dance around the graph to give you the space to trade within the same day meaning the prices should not be stagnant, meaning that there should be medium to high volatility. 

 

  1. Keeping a check on the trends related to the stocks once they have been chosen. Make sure not to choose a lot of stocks if you won’t be able to manage them together.
  2. The trader must use the right technical charts based on minutes/hours while day trading. This will help the trader in making the right decision as these stocks will be traded on the same day and hence it is important for the timing to be exact so that you don’t miss the opportunity. 

Who makes a profit in intraday trading? (Conclusion)

Making profits in intraday trading means that one needs to keep an eagle’s eye on the movements happening. Traders need to be confident in their strategies and should not let greed and intuition overcome their analytics. 

 

There are no shortcuts or recommendations that will help you become a successful trader in the long term. Traders’ constant work and experience over time discipline will help them make calculated decisions in trading in return for profits. 

 

A day trader should have the skill to read trendlines and chart price waves to make a living out of intraday trading. There are so many strategies that traders follow according to their situation in whichever way they are comfortable with and have the expertise in. 

 

But not all strategies work in all situations. One needs to change their strategies according to the market whenever needed and for these changes, skill and experience play a vital role. 

 

There are so many things to keep in mind while day trading. 

 

So to sum up, a person who has the right tools and skills will make a fortune out of intraday trading. The profits can be high in day trading and one can make a living out of it. Today, a lot of people have already taken it as a full-time role and are earning quite well by following their own rules and strategies with utmost discipline. 

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