If you are thinking about trading securities to make some extra or even a lot of money, understanding the difference between an intraday and interday trade could keep you out of some trouble with your broker. Your trading strategy may focus on very short-term trades or you may feel comfortable with holding a trade for several days to let your profits build.
Trading Time Frames
Intraday means "inside or within" the day. In trading jargon, intraday trading is commonly referred to as day trading. With an intraday trade, you take a position in a stock, futures or currency pair after the markets open and close the position before the markets close on the same day. With interday trading, you keep trading positions open at least through the close of the markets and overnight. Swing trading is a common way to describe the practice of holding positions from a day to a week or so.
Day Trading: Hot and Dangerous Work
The concept of day trading sounds like the way to go. You trade during the day, lock in your profits before the markets close and sleep well at night. As you research potential trading strategies, you will notice a very high level of interest in intraday trading and a lot of individuals and companies selling advice about it. However, the U.S. Securities and Exchange Commission's website includes a full page discussing the dangers of trying to profit from day trading. The SEC notes that most new day traders lose most of their trading money when they start out and there are no "easy profits" with this type of trading.
Trader Rules and Restrictions
Depending on the type of securities you are trading, the rules may be significantly different for intraday and interday trades. Stock market and futures trading rules both provide higher levels of leverage for intraday trades. Leverage helps you make larger profits from small price changes during the day. For stock traders, regular day trading will result in the pattern day trader designation. A day trading stock account must maintain more trader equity -- $25,000 vs. $2,000 -- and withdrawals of cash are restricted. Futures traders need more cash on deposit to hold a position overnight compared to day trading.
Effects on the Markets
The rules that affect trading accounts when the stock and futures markets close are also of importance if you swing trade or interday trade. If a day trader does not close a position by the time a market closes, that trade then falls under the interday trading rules. That prospect compels day traders to close out trades in time. As a result, for the interday trader the closing price of a security may have more significance than all of the volatility during the day.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.