The stock market is a versatile marketplace where multiple strategies are available for traders and investors. Two of the common strategies are intraday trading and delivery trading. While both involve buying and selling securities on the stock market, there are key differences that investors need to understand to make informed decisions.
In this article, we will delve into the difference between intraday and delivery trading, the pros and cons of each, and the best way to approach each type of trading. Before looking at the differences, let us first understand the meaning and key features of intraday and delivery trading.
Intraday trading, also known as day trading, involves buying and selling securities (such as stocks or bonds) within the same trading day. In this type of trading, traders aim to profit from short-term price fluctuations in stocks, commodities, or currencies. The primary goal is to capitalise on opportunities arising from volatility in the market.
The trades executed via intraday orders are meant to be squared off by the end of the trading day. If you do not exit the position voluntarily, your broker can square off the open trades at a price available at the time of closing. You should check with your broker about this process.
If the share price is below the target selling price, they buy the shares. When the price reaches their target levels, they sell the shares and book their profits for the day. If the price does not reach their target, then at the end of the day, they have to sell the shares at whatever best price is available.
Let us understand this better with an example:
Suppose Miss A sees the opportunity to buy shares of Company Z at Rs. 240 at 10 AM with a target price of Rs. 250. Now if she buys the shares and the price reaches Rs. 250 at 12:30 PM, Miss A will sell the shares and book her intraday profits. If the price of Company Z shares does not reach Rs. 250 but trades between, say Rs. 246 and Rs. 248, for the rest of the trading session, she will have to exit at whatever the best price is available before the market closes at 3:30 PM.
Delivery trading, also known as positional trading, is a method of investing in the stock market where you buy shares with the intention of holding them for a longer period of time. This timeframe can range from a few days to weeks, months, or even years.
Here, investors’ objective is to benefit from the long-term appreciation of stocks or other securities. Unlike intraday trading, delivery trading is not concerned with short-term fluctuations or market timing.
When you buy the shares on a delivery basis, you are also entitled to the dividends, rights issue, and bonus issue declared on those shares. The shares delivered to you are deposited to your DEMAT account upon purchase. The DEMAT account works as a safehouse of all the shares you’ve purchased and taken delivery for.
The targets in the case of delivery trading can be higher as there is ample time for the price to move higher. The trader has to make full payment for the value of the shares purchased. For instance, if you buy 100 shares of Company B at Rs. 120 per share, you have to pay Rs. 12,000 at the time of purchase. There is no concept of margin in the case of delivery trading.
Short-term Focus: Intraday trading focuses on benefitting from short-term price movements rather than long-term investment strategies.
Active Trading: Intraday traders must actively monitor the market, and analyse charts and indicators to identify potential opportunities.
High-frequency Trading: Intraday traders often execute multiple trades within a single trading day to maximise the potential for profit.
Additionally, intraday trading requires discipline and quick decision-making. Traders need to be able to swiftly react to market fluctuations and adjust their strategies accordingly.
Intraday traders often rely on technical analysis to make informed decisions. They study various indicators, such as moving averages, support and resistance levels, and volume patterns to identify potential entry and exit points. This analytic approach is helpful while navigating the volatility of the market and take advantage of short-term price movements.
Long-term Investment: Delivery trading aligns with a long-term investment approach that aims to benefit from the growth potential of stocks over time.
Passive Trading: Unlike intraday trading, delivery trading requires less frequent monitoring of the market.
Balanced Risk: Delivery trading is typically considered less risky compared to intraday trading, as it allows investors to ride out short-term market fluctuations.
Further, fundamental analysis plays a crucial role in delivery trading. Investors carefully evaluate a company’s financial statements, management team, competitive advantage, and industry trends to assess its long-term potential. By focusing on the underlying value of the company, investors aim to make informed decisions that align with their long-term investment goals.
Pros of Intraday Trading
Cons of Intraday Trading
Pros of Delivery Trading
Cons of Delivery Trading
Let us take a look at the 3 main elements you should consider while approaching intraday and delivery trades.
Liquidity
As intraday trades need to be squared off the same day, the share must be liquid enough. In the case of delivery trading, there is ample time after buying to wait for the target. Therefore, liquidity is not a problem for delivery trading. The best way to find out whether a share is liquid or illiquid is to look at the trading volumes. The higher the volume, the more liquid the share.
Volatility
Again, in the case of intraday trading, the prices need to pick up momentum to reach the target. If the price trades within a range throughout the trading session, an intraday trader can never make money. Therefore, intraday traders pick volatile shares. Mostly, shares with high volume, large-cap shares, shares of companies with some newsflow, etc. are more volatile. For delivery trading, prices have enough time to make the move towards the target.
Research, Study, and Tools
Before entering into any trade, extensive study is important. Experts use tools like charts and indicators to conduct technical analysis for intraday trading. On the other hand, for long-term delivery trading, they study the fundamentals by going through the financial statements of the company, reports on industry performance, conducting ratio analysis, etc. Apart from these factors, risk management also differs in both types of trading. Therefore, you must analyse each trade carefully in terms of both profit and loss before executing.
Understanding the difference between intraday and delivery trading is crucial for investors to make informed decisions. While intraday trading offers the potential for quick profits and active involvement in market fluctuations, delivery trading provides a more relaxed approach focused on long-term growth. It is important to consider factors such as risk tolerance, financial goals, time commitment, and market knowledge when choosing the most suitable trading strategy.
TradeSmart offers extensive features for both intraday and delivery trading, along with real-time support during market hours. Open a free Demat account today and benefit from the insights of experts with over 2 decades of experience in the stock markets of NSE and BSE. The best part? You can execute trades with low brokerage fees of only Rs. 15 per executed order, regardless of the trade size or segment.
The profitability of any type of trading mainly depends on the way trades are planned and executed. In Intraday trading, the profitability primarily depends on how well you execute trades based on technical analysis like charts, indicators, and impactful news. In delivery-based trading, profitability depends on how you interpret the fundamentals like macro-economic factors, industry statistics, company performance, etc.
In the case of intraday trading, the transactions are closed out on the same day and the profits or losses are debited to the account. In the case of delivery trading, the delivery of shares takes place after T+2 days, that is, two working days after the transaction day.
The margin required for intraday trading is much lesser than the margin required for delivery trading. This is because the profit targets and stop loss in the case of intraday trading are smaller which gives room for leverage to the trader. In the case of delivery trading, no margin is available as you have to pay the full amount of shares to buy them. You can calculate the margin here.
Both types of trading have their advantages and disadvantages. The choice depends on various factors such as your risk tolerance, financial goals, time commitment, and market knowledge.
Different brokerage platforms provide different brokerages based on the segment you choose to trade. However, at TradeSmart, we offer you the lowest brokerage of Rs. 15 per order irrespective of the trade size or segment. You can check out the plans here.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.
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Please note that by submitting the above mentioned details, you are authorizing TradeSmart to call and email you and also to send promotional communication even though the contact number may be registered under DND.