Intraday Trading vs. Delivery Trading: What you need to know
Have you recently started trading in the stock market? If yes, then you must take a close look at the various stock trading techniques. For instance, you may be looking at intraday trading and delivery trading.These are two distinct trading methods.
How do you decide which method is better for you?For short-term trading, it is advisable to go for intraday trading. Delivery trading is better if you want to hold on to the stocks for a longer time.
Let’s first understand how these trading methods work. Then, we can look at the differences between them.
Understanding intraday trading and delivery trading
In intraday trading, traders buy and sell securities within a single trading day. Let’s say you buy some shares when the market opens. You have to sell them the same day before the market closes. The difference between your buying price and selling price represents your profit or loss.
Delivery-based trading allows traders to buy and hold securities for as long as they want to.You can sell your shares in one day.Or,you can hold on them for a few months and even years. Investors trading under this option look at it as a long-term investment.
Differences between intraday trading and delivery trading
Here are some of the important differences.
Margins are the key factor distinguishing intraday and delivery trading systems.
Intraday traders can enhance their earnings by using margins. Margins are trading loans that brokers offer clients at a small interest. For instance, you may want to buy securities worth Rs 10 lakh and your broker gives a 10x margin. So, you invest Rs 10,000 and borrow the remaining Rs 90,000 from your broker. You end up paying only 10% of the total investment.
With delivery-based trades, the stocks have to be for paid upfront. Even if your broker offers a margin, it will be much lower than for intraday trades. This is because intraday funds are used for only a few hours, since you have to settle intraday trades on the same day.
Another factor driving people towards intraday trading is the possibility to earn quick profits. Here, you can take advantage of stock price movements and book profits. As trades are settled on the same day,investments are held for a short period.
In general, those opting for delivery-based trading aim to hold securities for a longer period. Funds here remain blocked until you sell the securities.
- Investment analysis
For intraday trading, technical indicators can help you. They will give you an idea of price movements based on historical price charts. Intraday trades can be sensitive as they are also event-driven. Suppose a big investor joins a company. Then, traders may buy stocks of that company hoping for a price appreciation. However, these indicators cannot tell you about a stock’s long-term success.
In delivery-based trading, experts can help investors to shortlist companies with strong long-term potential.This involves a thorough analysis ofa company’s operations and earnings. You also need to assess thecompany’s financial situation. This type of study is known as fundamental analysis.
Millions of traders use these two trading methods on a regular basis. Your priorities should determine which type you choose. In a nutshell, opt for intraday trading if your risk appetite is high. Otherwise,go for delivery-based trades. A reputed broker like Kotak Securities can help you kick-startyour trading journey. Click here to open an account that is the right fit for you.