Derivatives have emerged as one of the most potent tools in the hands of traders and investors in the realm of financial markets. They enable you to position yourself in the market without holding the underlying instrument. But with derivatives trading, two prominent techniques hold sway Intraday vs Positional Derivatives Trading.
Every style has certain opportunities and challenges. By emphasizing the differences, you will be able to choose a trading style according to your risk appetite, time available, and profit goals.
Let’s dive deep into Intraday vs Positional Derivatives Trading and examine how every style works, its pros and cons, and what can be better for you.
1. What is Derivatives Trading?
To compare Intraday vs Positional Derivatives Trading, let’s first know the basics.
Derivatives are financial instruments whose value is derived from an underlying asset, including stocks, indices, commodities, or currencies. The most popular derivatives in the Indian market include futures and options. Traders use these instruments to hedge against risks or speculate on price changes.
For instance, if you think that NIFTY will increase in the coming few days, you can purchase a NIFTY future. If it increases, you earn a profit; if it decreases, you lose.
The major difference is in the duration for which you maintain your position, and that is where Intraday vs Positional Derivatives Trading differs.
2. What is Intraday Derivatives Trading?
Derivatives trading intraday implies buying and selling of contracts on the same trading day. The trader does not carry forward the position overnight.
This technique is ideal for those who wish to gain profit from intraday price fluctuations. Intraday traders use excessive reliance on technical analysis, indicators such as RSI, MACD, or VWAP, and live charts to make fast decisions.
For instance, a trader can buy Bank NIFTY futures during the morning, anticipating an up move and close the trade before the market hours end, with a modest profit.
Key features of Intraday Derivatives Trading:
- Positions are closed before the end of trading day.
- Reduced margin requirements by virtue of broker’s leverage.
- Developed to make small, fast profits.
- Requires continuous market monitoring.
In Intraday vs Positional Derivatives Trading, intraday trading suits individuals who enjoy dynamic situations and rapid returns.
What is Positional Derivatives Trading?
Positional trading in derivatives is the closing out the position for several days up to weeks. The idea is to capitalize on bigger, trend-based movements instead of intraday movement.
For instance, an investor may study the Reliance Industries stock and anticipate a strong uptrend movement from both technical as well as fundamental indications. They buy futures and hold them for a few days until the desired price is manifested.
Features of Positional Derivatives Trading:
- The positions are retained overnight or for a few days.
- It needs a larger margin compared to intraday business.
- Are the direction the direction rather than current-time volatility.
- Less tense, as there is no need for continuous monitoring.
Between Intraday vs Positional Derivatives Trading, positional trading suits one with a patient temperament and an analytical mindset.
Advantages and Disadvantages of Intraday Derivatives Trading
Advantages:
- No overnight risk due to global events or news.
- Chance to earn daily profits.
- Needs less capital because of the leverage.
- Suits active participation-based traders.
Disadvantages:
- Excessive emotional stress caused by rapid decisions.
- Needs constant focus on the market.
- Brokerage and slippage fees can devour profit.
- Trades can result in rapid loss.
Intraday trading is similar to a sprint rapid, aggressive, and rewarding for those with speed and accuracy.
Advantages and Disadvantages of Positional Derivatives Trading
Advantages:
- Ability to capture big market trends.
- Less emotional stress since you don’t have to look at charts every waking moment.
- Fewer transaction fees than several intraday trades.
- Flexibility in terms of time for working professionals.
Disadvantages:
- Risk to overnight events such as global market news or political.
- Needs a higher margin and patience.
- A longer holding period may tie up capital.
Positional trading is more like a steady, strategic and suitable for those who wants long-term.
Risk Management in Intraday vs Positional Derivatives Trading
Regardless of the method you are employing, risk management is paramount. Positional as well as intraday traders have to safeguard their capital by employing the use of stop-loss orders, effective position allocation, and disciplined exits.
In Intraday vs Positional Derivatives Trading, intraday speculators regulate risk by strict stop-losses and fast unwinding, whereas positional speculators regulate risk by changing positions according to reversal of the tendency or overall signals
Coming to terms with volatility, leverage, and terms of the contract is essential to both.
Which One Should You Choose intraday or Positional
Your Intraday vs Positional Derivatives Trading choice will depend on the personality, trading motives as well as time you have.
Select Intraday Trading if:
- You will have full-time to give to the market.
- You enjoy quick decision-making.
- You are comfortable with short-term risk and volatility.
- Choose Positional Trading if:
- You have limited time each day for monitoring.
- You prefer trend-following strategies.
- You are able to wait out the positions for the bigger profits.
Even the most professional traders merge the pair of strategies by undertaking intraday transactions during choppiest days and positional transactions during trending periods.
Importance of Learning Before You Trade
Derivatives are powerful tools but also complex instruments that demand proper understanding. Whether you are fond of Intraday vs Positional Derivatives Trading, structured learning alone coupled with practical market exposure will bring you success.
It’s where education from a renowned institution like the Indian Institute of Stock Market Training (IISMT) makes all the difference. The IISMT equips you with real-time market practice, technical and fundamental analysis courses, as well as risk management modules to help you deal with the harsh realities of the stock market.
Institutes like IISMT also train the student not only in the ABC but also the finesse of making smart choices while making the exchanges.
In conclusion
Intraday vs Positional Derivatives Trading, there is nothing better. Each one has aspects where the other is better. What you need to do is decide what type you are as an individual and match yourself up with the type.
If you enjoy working under tension-laden conditions and observing the daily direction of price, then intraday is the way to follow. If you enjoy calm study, waiting, and longer-term observation of markets, positional trading is the way to follow.
Finally, discipline, education, and knowledge are the raw materials out of which success is built as an intraday positional trader.
