Intraday vs Delivery Trading: Which One Is Best For You
Intraday vs Delivery Trading: Which One Is Best For You
Most people trade in the stock market to make money, and the primary method to make money in trading is by earning profits. There are also other types of forms of earning money in trading, such as dividends and bonus shares, but these are secondary methods, and the primary focus of a trader is on buying a stock at a lower price and selling it at a higher price.
A stock market is an inclusive place accommodating all types of investors, whether he is a day trader who predicts the price movements of a stock using technical indicators or a long-term trader focusing on the long-term growth and payments of a company, therefore to know how to select stocks for Intraday and delivery requires different skills and temperament.
In this blog, let’s focus on these two types of traders who contrast to each other but are part of the same ecosystem.
What is Intraday and Delivery?
Intraday and delivery are two of the approaches out of different types of trading approaches that have their specific features, upsides, and downsides. Trading strategies are of different types, and a trader applies these strategies depending upon various factors such as his knowledge of the market, requirements, risk appetite, and many such factors based on which a trader must decide between Intraday vs delivery which one is better for him. Now let’s delve deeper to understand in detail what Intraday and delivery are:
The purchase and sale of shares in Intraday trading take place within the same day, i.e., you have to buy and sell your stocks before the market closes. The end goal of an Intraday trader is to earn a profit, but the most important thing here to acknowledge is that you have to square off your position before the market ends, no matter how your stock is performing.
To decide between Intraday vs delivery trading is better, let’s understand the pros and cons of both in detail.
Advantages of Intraday Trading
1). Margin Facility: Intraday trading gives you the facility of trading with more than your capital by giving you a margin facility. A trader can buy stocks worth more than their capital, and the deficit will be funded by the broker.
By availing of this facility, a trader can buy even those stocks he could not afford earlier. This opens up the opportunity for him to leverage his position in the market.
2). Taking no risks overnight: In Intraday trading, all the transactions have to be settled within a single day and cannot be carried forward to the next trading day, which gives a trader the assurance that his stock price won’t be affected by any overnight news.
In this method of trading, capital is only tied up for a few hours, and this shorter time frame enables traders to book profits rapidly from price fluctuations.
3). Learning: Intraday trading can be done with less capital as well, so that’s why if you are a beginner in the stock market, then with Intraday trading, you can learn about the tricks and trades of Intraday trading and get practical learning of how to trade.
4). Benefit from short-term market volatility: In the short-term, the stock market can be highly volatile, hence if you are an experienced trader and could apply the Intraday trading strategies to your use, then, in this case, you can book good profits in a short time.
Disadvantages of Intraday Trading
1). Riskier proposition: In the short term, the stock market could fluctuate up and down pretty fast, and the Intraday transactions have to be settled before the market closes, so there is less time to settle your positions profitably.
If the market is against you throughout the day, it could result in incurring losses during the day, which could get severe if the exposure is high.
2). Requires Constant Tracking: Intraday trading requires constant monitoring and tracking of your stocks. In Intraday trading, you need to select a limited number of stocks and track them continuously to follow their price movements.
3). No Additional Benefits: Intraday traders are not the owners of the stocks they are trading in. They are just simply using the price movements of the shares to their advantage. Therefore, there is no physical transfer of ownership of shares, and thus a trader does not enjoy other additional benefits such as dividend payments or the issue of bonus shares.
4). Volatility: It is comparatively easier to trade on long-term charts in comparison to short-term charts as the volatility of 5 minutes or 30 minutes is higher in comparison to monthly charts.
Learn How to make money in Intraday trading and how to select stocks for intraday trading using the right strategies and indicators if you are interested, then start your trading journey by understanding how to start Intraday trading.
What is Delivery Trading in the stock market?
If Intraday is about squaring off position on the same day, then what is delivery in the stock market? Contrary to Intraday trading, delivery in the stock market is a type of trading that allows you to put your money in stocks for a longer duration of time. The biggest flex of delivery trading is that in this method, unlike Intraday trading, there is no limitation of squaring off your position by the end of the day.
So, in the stock market, while performing delivery trade, it becomes important how to select good stocks for the long term, and for that, there are some important ratios you must know before Investing.
Unlike Intraday trading, in delivery, the transfer of ownership takes place, and the buyer of the shares becomes the owner of the shares he purchased. The shares get transferred to the buyer’s Demat account, and brokerage is charged by the depository participant, which also includes the cost of depositories.
Advantages of delivery trading
1). Flexibility: In delivery trading, you have the flexibility to sell your shares when you deem it necessary, and you are not bound to sell them within a set timeframe. If you analyze that the price of your holding will rise after a certain period of time, then you have the flexibility to hold on to your stocks and sell them when you deem it right.
2). Additional Corporate Benefits: In delivery trading, if the trader holds onto the stocks for a longer duration, then he is entitled to other additional benefits that a long-term shareholder gets, such as dividend payments, right issues, and bonus shares.
3). Ability to leverage wealth: You can raise money against your shares in the Demat account, and you can also show these savings as your wealth when applying for a loan.
Disadvantages of Delivery trading
Requires large amount of capital: In delivery trading, it requires a large amount of capital in comparison to Intraday trading. As a larger amount of capital is required hence the margin of error becomes less, and losses incurred can be higher too.
Overnight Risk: In delivery trading, as you hold on to your buys for more than one day, therefore any overnight news can impact your profitability. Suppose you are holding a share of a company at the close of the market, and overnight negative news broke out regarding that company. Then, it can lead to a fall in the prices of your stock, and you may incur a loss.
High government taxes: In delivery trading, the taxes levied on your profits are higher in comparison to Intraday trading
Intraday vs Delivery Trading: Key Differences
Intraday trading and delivery trading are two different approaches to trading which have their own pros and cons, and an individual takes a particular approach that suits his or style and his requirements. Here are some of the prominent differences between Intraday and delivery that distinguishes these two approaches of trading:
1). Share Delivery: In delivery in the stock market, as you hold shares for more than a day, the delivery of shares takes place from the seller Demat account to the buyers, whereas in Intraday trading as you are required to square off your position by the end of the day, thus no delivery of shares takes place.
2). Time Duration: According to delivery trading rules, an individual can hold the shares for as long as he wishes to whereas in Intraday trading it is mandatory for a trader to sell the shares by the time market closes and square off his position, whether he is profitable or not.
3). Transfer of ownership: In intraday trading, a trader does not own the shares he buys as the delivery of shares does not take place because the Indian stock market follows the T+1 cycle for settlement of shares, and in Intraday, a trader has to square off his position by the end of the day, hence the transfer of ownership does not happen.
In delivery trading, the delivery of shares to the buyer’s Demat account takes place, and the buyer becomes the owner of the shares he has purchased.
4). Individual mindset: Having the right mindset is a very important difference between Intraday and delivery and an important trait in the stock market generally, the mindset of an individual reflects in his approach to trading.
If a trader feels that his temperament and skill are better suited for long-term investing, and he has the ability to pick the right stocks based on the intrinsic value of a company and analyze the other important metrics of a company, such as the financial statements and other important ratios which is an important delivery trading rule, then the trader should go for delivery trading.
On the other hand, if he feels that he is better at making quick decisions and understands the important technical indicators to predict the short-term movements in the price of a stock, then he should go for Intraday trading.
5). Risk Factor: Intraday trading is considered to be riskier in comparison to Delivery trading as the market in the short-term, which is hours in the case of Intraday trading, can be volatile and tricky to predict whereas in the long-term, it is comparatively easier to predict the market.
But at the same time, delivery trading is a long-fought battle that takes more time to reap benefits, whereas, if done accurately, Intraday trading can give you handsome profits in the short term. So, Intraday is riskier but also more rewarding too.
6). Intraday vs Delivery charges: In Intraday vs Delivery, charges paid by an intraday trader are less as compared to a delivery trader, and in addition, Intraday traders also avail the facility of the margin facility.
These are some of the key differences between Intraday and delivery that will help a trader understand how one style is suited for a particular trader and what approach he should adopt going forward.
Trading in Futures and options is a popular medium of trading in the stock market. You can trade in options on a daily basis as well as hold them for a fixed period of time, depending upon the contract, so it has the elements of both Intraday as well as delivery trading.
You can learn how to trade in options even if you are a beginner or an experienced trader, as it has the features of both Intraday and delivery. We have options trading courses for all levels of traders, from basics to advanced, to cater to all types of traders and their requirements.
To wrap up things, it would not be wrong to say that trading is not a one-size-fits-all approach, and different individuals perceive the market differently and want to understand the market according to their own wisdom, and the stock market entertains all kinds of traders.
Similarly, Intraday trading and delivery trading are two different types of trading approaches and require different skills and mindsets. So, it becomes critical for a trader to understand himself and the stock market and then choose the right trading style that suits his skills and needs.