InvestorQ : Are there any hidden costs to intraday trading?
Bhavika Nehru made post

Are there any hidden costs to intraday trading?

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Bhavika Nehru answered.
3 years ago
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While brokerage and other costs are the apparent costs in your contract note, there are certain costs that are not visible in your contract note. Sample a few of these costs!

Risk of trading spreads is a big risk for intraday traders. This is called the risk of widening spreads. That is the reason you are required to trade on the most liquid shares only. When you trade less liquid shares, the trading spreads can widen and that leads to basis risk for an intraday trader. This is a cost that is not apparent but does impact the profitability of your intraday trades. For an intraday trader, this can be a huge hidden cost.

Risk of volatility is another risk especially if you are trading options on an intraday basis. When volatility in the market goes up, the value of the options go up. That is because options are asymmetric contracts where buyer is at an advantage over the seller of the option. Consider that you have sold an option. If the volatility increases during the day, then the price of the option will go up leading to losses on your trade. This, again, is a cost that is not apparent but impacts your profitability in a big way for options traders.

Above all, there is a capital risk that you may run when you are trading intraday. You may have reached a stage wherein you cannot compromise your capital beyond a point calling for you to truncate your positions at a loss. After all, we all trade with finite capital and at some point we may have to wait in the side lines. AT that point, a fire sale may lead to losses. This is a cost that is not factored in normal costs but does impact your intraday trading performance.

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