What Is the Meaning of Intraday?
A prefix in the English language, "intra" means "within." Derived from the Latin word "intra" meaning "on the inside," the prefix is seen in modern American English usage in common words such as intracellular, meaning within a cell; intracoastal, meaning within the coastline, and intramural, meaning within a single school or institution. The word "intraday" is often heard in reference to the financial world in descriptions of market trends.
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Identification
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Literally, intraday denotes "within the day," synonymous for "during the same day" in common American English usage. In reference to stock market indices and individual stocks, intraday refers to trends in a single trading day. For example, the price of the common stock of (fictional) Corporation XYZ may fluctuate throughout the day, priced at $23.50 at the opening bell, the start of the trading day, rising to $25.92 by noon, then falling to $24.83 by closing bell, the end of the trading day, collectively identified as intraday prices.
Significance
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Individuals known as day traders, who attempt to garner profits through fast buying and selling of securities, watch intraday price fluctuation of individual stocks meticulously. Buying on the lows and selling on the highs, even if the intraday prices move only a few pennies, can result in huge profits if thousands of shares are traded at the opportune moment. For example, using the fictional Corporation XYZ, a day trader who buys 10,000 shares at $23.50 and sells those same shares at the intraday high of $25.92 would garner a $2.42 profit per share, or $24,200 minus transaction fees.
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History
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Day trading and careful analyses of intraday stock prices became popular with the advent of real-time data availability via personal computers in the 1990s. However, a research study conducted cooperatively by the University of California and National Chengchi University in Taiwan has shown that over the long term the majority of day traders lose money. The study also concluded that the losses suffered by individual traders could all be "traced to their aggressive orders," oftentimes buying and selling based on intraday trends.
Function
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Many investors pay close attention to overall market trends through indices, composites that measure current trading prices of particular securities and other financial instruments. The Dow Jones Average, a trademark for a stock price index that mirrors a select group of 30 securities, may rise or fall significantly within one day. Financial news reports may refer to this activity as an intraday drop or an intraday rise in the Dow.
Other Uses
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Additionally, the federal funds rate (the rate of interest that banks pay banks for overnight loans) is diligently monitored on an intraday basis within the banking industry. The intraday rate determines the cost of borrowing as banks compete to maintain liquidity and required reserves while garnering profits, thus the intraday federal funds rate is often referred to in financial reporting.
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References
- Select Sector SPDRs: Glossary of Terms
- "Finance: Investments, Institutions, Management"; Stanley G. Eakins; 2005
- "Encarta Encyclopedia"; Microsoft Corporation; 2004
- University of California, Berkeley: Just How Much Do Individual Investors Lose by Trading?
- Federal Reserve Bank of New York: Intraday Liquidity Management, A Tale of Games Banks Play
- USA Today: Rolling the Dice: Day Trading is Gambling
Resources
- Photo Credit Michael Hevesy/Pixland/Getty Images
