The stock market is a versatile marketplace where multiple financial products are available for all types of traders and investors. Some prefer short-term trading whereas some prefer long-term trading or investing. The stock market has something for everyone. Investors hold their investments intending to create wealth and grow with the company. Investors are in no hurry to sell their investments and book their profits.
Traders, on the other hand, book their profits from time to time. Based upon when the profit is booked, the traders’ activities of buying and selling can be categorized into two types, intraday trading, and delivery trading.
Let us look at both types in detail along with their advantages and disadvantages and understand how these trades need to be approached.
When you buy the shares on a delivery basis, you can hold them for as long as you want. You become the rightful owner of those shares. 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 @ 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.
Let us dive deeper more by knowing the pros and cons of delivery trading.
Some of the benefits of delivery trading are mentioned below.
As a shareholder, you are free to hold on to your shares for as long as you like. If the shares do not perform well in the short term, then it is not necessary to book losses immediately. If there is a possibility of shares performing well over the long term, then you have the choice to hold on to the shares.
Since there is no margin money involved in delivery trading, the maximum loss is limited to the sum paid for buying the shares. In the case of margin, the loss can be higher.
Since you own the shares, you are eligible to receive dividends declared by the company. Any bonus shares declared by the company also get credited to your DEMAT account.
Let us also look at some of the cons of delivery trading.
Since the benefit of margin is not available in delivery trading, the capital invested remains blocked unless the shares are sold. This impacts the liquidity.
As we discussed if you buy 100 shares of Rs. 120 each, you need to pay the full capital of Rs. 12,000 to buy the shares. No benefit of leverage can be availed by the delivery trader.
To understand the difference between the two types of trading, let us go through the intricacies of intraday trading.
An intraday trade is a transaction where you sell or purchase a share within a trading session. Intraday trades are executed through a different set of orders. The traders executed via intraday orders are meant to be squared off by end of the trading day. If you voluntarily do not exit the position, 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 prices, then at the end of the day, they anyway have to sell the shares at whatever best price is available. Let’s take an example for a better understanding.
Suppose, Miss A sees the opportunity to buy shares of Company Z @ 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.
Does that sound tempting? Well, you must look at the pros and cons too before you jump to any conclusion.
Here are some of the benefits of Intraday trading.
Margin funds are used by intraday traders to take positions. You can use margin for a larger trade without paying much in advance.
As the positions are squared off on the same day before the market closes, there is no impact of any news that comes in later. You can start fresh the next day.
The short timeframe allows traders to liquidate their positions in a single day. It’s also beneficial for traders as it allows them to book profits quickly.
There are some shortcomings to intraday trading as well. Let us look at them.
You must keep track of the movements of markets to position yourself for optimal profits. This discipline is very different from other forms of trading.
Unlike other forms of trading, intraday traders do not own shares. This means they do not have the rights and privileges that come with owning shares.
Now that you know both the types of trading in detail, shall we go ahead and understand how each of them must be approached? Let’s find out.
The way you approach intraday trading vis-a-vis the way you approach delivery trading is completely different. These three main elements make a major difference.
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 liquid the share is.
Again, in the case of intraday trading, the prices need to pick 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.
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 analyze each trade carefully in terms of both, profit and loss, before executing.
To be able to achieve long-term success in trading, you must choose the type that matches well with your personality and meets your requirements. Trading is a long-term business and without proper risk management, it can get difficult to survive in the stock market. Along with that, you also need a stable platform to execute your trades.
You can check TradeSmart’s trading terminal with extensive features that allow smooth execution of both, intraday as well as delivery trading. Apart from that, TradeSmart provides the lowest brokerage in India at Rs. 15 per order or 0.007%, as per the plan you choose. You can check out more details here.
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’s 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.
If you have less time to allot to the stock market on a daily basis, delivery trading is a good option for you. And if you are someone who is good at technical analysis and has time to spare for the market every day, then you can go for becoming an intraday trader. However, both types of trading have their advantages and disadvantages.
Different brokerage houses 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.
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.
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.