Stock market investing can help generate significant profits and can help in long-term wealth accumulation. As a newcomer in the stock market, picking a suitable investment alternative can be a daunting task.
Shall beginners put their money into IPOs or intraday trading? Both solutions offer unique benefits and drawbacks, making it hard for novices to determine the best for them. Let us look at the dissimilarities between IPOs and intraday trading and see which choice could be better for beginners.
What is Intraday Trading?
Intraday trading, as the name implies, is a type of trading that involves buying and selling financial instruments, like stocks, commodities, etc. within the same day. Intraday traders seek to capitalize on short-term price fluctuations in the market. In this kind of trading, positions are maintained for minutes to hours at a time. Since the prices rapidly react in response to market news and events, intraday trading can be risky. Thus, traders must be prepared to adjust their positions to minimize losses.
Day traders utilize technical analysis and real-time market data to make trading decisions.
Pros and Cons of Intraday Trading
Some of the pros of intraday trading are:
● Due to short-term price movements in the stock market, traders can make quick profits through intraday trading.
● Intraday trading allows day traders to get into numerous trades in a single day, potentially boosting their overall returns.
● Intraday traders can quickly react to market changes as there is flexibility to enter and exit trades at any time during a particular trading day.
The cons of intraday trading include the following:
● Intraday traders must constantly monitor the market throughout the trading day, which can be burdensome and time consuming.
● Intraday trading necessitates frequent buying and selling, which can result in significant transaction expenses such as brokerage fees.
● Due to the fast-paced and unpredictable market, intraday trading may be risky, and traders must prep to modify positions in order prevent losses.
● Intraday trading demands a thorough knowledge of the technical indicators and the ability to assess real-time market data and make prompt and smart judgments.
Definition of IPO
A private corporation can raise funds from public by going through an IPO or initial public offering. This process involves the issuance of new stock to the general public for the first time.
Once the IPO is issued, the stock gets listed on the stock exchange, and investors can gain if the stock’s price rises after the listing. Investors can research the upcoming IPOs and gain from their listings.
Pros and Cons of Investing in IPO
A few of the benefits of investing in an IPO are:
● Companies that go public may have high growth potential, which can result in substantial profits in the form of listing gains.
● An IPO investment allows purchasing of shares of a company before it is traded, which could help one get the shares at a lower price than when it is listed and its price rises.
● IPO investment is a different category of investment and hence can help add the diversification angle to the investment.
● Investors of an IPO can also sell their shares once they get listed, thus offering them liquidity.
Some of the cons of investing in an IPO are:
● It can happen that on the listing day, IPOs may be subject to high volatility, which could result in potential losses for investors.
● The companies coming up with an IPO have limited information about how it’s share price will react to the market scenarios, since they have no historical data. .
Comparison of IPO and Intraday Trading
Intraday trading and IPO are two different investment strategies with distinct approaches and goals.
● IPO investing involves having a basic grasp of the financial markets and the company one invests in. Intraday trading, on the other hand, necessitates a greater degree of skill and competence, including understanding real-time market data and making rapid, educated judgments.
● IPOs generally demand considerable investment capital, whereas intraday trading can happen with less cash as only margin amount needs to be paid.
● IPOs are a long-term investment strategy that focuses on purchasing shares in a company to keep it for a long period and perhaps profiting significantly. Or waiting till the listing day and sell it in case there is listing gain. Intraday trading, on the other hand, is a short-term investing technique that tries to benefit quickly from price fluctuations on the same day.
● Due to a lack of historical data and the possibility of unforeseen market or economy events, IPOs can get risky. Given the fast-paced and unpredictable nature of the market and the necessity to make quick judgments based on real-time market data, intraday trading is also risky.
To summarise, IPOs and intraday trading have advantages and disadvantages and are appropriate for different investment goals and risk tolerance levels. Before settling on a plan, beginners must carefully assess their investment objectives, risk tolerance, and expertise.
Investments in securities market are subject to market risk, read all the related documents carefully before investing.