Difference between Intraday Trading and Delivery Trading

Trading is a skill that most people want to learn today. This provides people empowerment to create alternate sources of income. There are various forms of trading and traders with varied interests choose them accordingly.

The primary difference between Intraday and Delivery Trading is the time of holding the shares and the use of margin. If you buy shares today and sell them before the market closes, this will be an intraday trade. If you do not sell those shares on the same day and sell them some other day, it will be a delivery trade. Intraday trading provides a margin benefit that allows you to invest more than your available capital.

In the case of Intraday Trading, it is mandatory to buy and sell the shares on the same day. However, in delivery trading, you hold your shares for months, years or even decades at times.

What are Intraday Trades?

Intraday Trade is buying and selling shares on the same day. It is also referred to as day trading. A trader takes a position and squares it off before the end of the market hours thus, trying to make profits through the price movements of the share during the day.

Intraday traders usually operate with something known as leverage that allows them to invest more than their available capital and in return increase the potential of making more returns from a trade. This leverage is provided by their stockbrokers as per the margin guidelines provided by SEBI.

Here’s How Intraday Trading Looks Like:

  • You choose a stock and analyse whether the stock prices are going to rise or fall.
  • You analyse the past price performances and apply indicators to judge whether the price will rise or decline.
  • You decide to take a long (the stock prices will rise) or a short (the stock prices will fall) position on the stock and place an intraday order
  • Once the order is placed you look at the price movements depicted through charts and analyse the patterns of these movements.
  • Once the price has moved to your target price you can now square off the position, which essentially means, settling the trade.
  • If the market is nearing closure and even then, your target price is not achieved, you will still have to square off the trade as per SEBI regulations. If you don’t, the broker will square it off.

Advantages of Intraday Trades

  • Intraday trades require low capital as they have an advantage of margin that boosts the position size. It is also known as leverage.
  • An intraday trader has an opportunity to get more returns even by investing low capital, attributed to the leverage involved with it.
  • Intraday trades involve short selling. This simply means taking a position when the trader expects that the share prices will fall. So, a trader can also make profits even when the markets are falling.
  • The capital invested by a trader is not blocked for a long time. The duration of intraday trades is for a day and the investment the trader has made can be withdrawn after the settlement of the trade.
  • Traders can ride both the uptrend & downtrend and make the best of the analysed opportunities.
  • Intraday traders do not have to deal with gap-up and gap-down scenarios as the trade is settled at the end of the day. If there is a piece of specific news related to the stock after market hours that directly impacts the opening prices of the share the next day. Intraday traders do not have to deal with the subsequent gap up or gap downs.

Disadvantages of Intraday Trading

  • Intraday trades are settled in one day and thus it does not provide a trader ample opportunity to ride the complete wave. Sometimes, the prices may not move at all, and the trader may not be able to make a profit from that trade.
  • In continuation to the above point, as there is less time duration, if the prices start moving opposite to the favoured direction, a trader may not be able to wait till it rebounds and they must close the position at the end of the day even if they are losing money on that trade.
  • Intraday Trading involves leverage and if it is not handled carefully, it may result in significant losses.
  • An intraday trader must dedicate a considerable amount of their time to the position taken in trade and continuously monitor the share price, news, etc.
  • Intraday traders do not get benefits, such as dividends, bonuses, and voting rights.

What are Delivery Trades?

Delivery trades correspond to long-term investing. A delivery trade does not have a deadline associated with it. Here, you are buying the share and holding it in your Demat a/c. Delivery traders are long-term investors and may hold on to their investments even for months, years or even decades at times.

Advantages of Delivery Trades

There are several advantages associated with delivery trading, let us understand them.

  • You can hold on to your investments for long periods and are not obligated to sell them at a defined time.
  • You get all the additional benefits of owning a share such as dividends, bonuses, and voting rights.
  • Market volatility has very little impact on your investments and in most scenarios’ delivery traders ride out such phases.
  • You do not have to dedicate your entire time to analysing and monitoring your investments.

Disadvantages of Delivery Trades

Along with several advantages, there are a few disadvantages associated with delivery trading as well. Let’s have a look.

  • You will have to pay the full price of the share to take the position. However, some brokers provide the facility of Margin Trade Financing, where you can take the position by just paying a fraction of the share price. The broker funds the rest & charges interest on it. Bajaj Financial Securities Limited Offers Margin Trade Financing at low-interest rates with up to 3.5x leverage.
  • Your invested capital is locked in, for long periods.
  • You do not get the advantage of short selling in delivery trading.

How do Intraday Trades differ from Delivery Trades?

Intraday Trades differ in multiple aspects when compared to delivery trades. There is a deadline involved with settling intraday trades while there is none with delivery trades. You can hold on to your position for as long as you want. The objective of both forms of trading is the same, that is to earn profits, however, the approach is completely different. In intraday trades you are taking multiple trades to achieve this but, with delivery trading, you are holding on to your investment for a long period to achieve the same goal.

When you take a delivery trade you get the shares delivered to your Demat A/c, which indicates that you own the share. However, in intraday trading, you only take a position on that share, and you do not own the actual shares. Intraday trading requires more time and effort compared to delivery trading. Delivery trading also allows you access to other benefits like dividends and bonuses.

The Importance of Trading Margins

Margin is a key aspect of trading. The concept simply means that you can invest more than your available capital. Above your invested capital, your stockbroker will finance the additional margin and you will have access to more than your invested capital. This is like a loan and once the trade is settled the margin amount is settled by the stockbroker as well.

Trading with the power of margin allows you to maximise your potential for returns. As this allows you to invest more than your available capital, it is the main attraction for any trader. However, with leverage comes more responsibility. You need to manage leverage carefully and ensure that you use it wisely after researching well. Especially for beginners, it is important to be careful with leverage. You should use stop-loss orders to manage your losses just in case the trade is not moving in your preferred direction.

How Your Approach Should Differ for Intraday and Delivery Trades

Intraday trading and delivery trading are two different ball games altogether. While intraday trades require you to be active during a specific market day and thorough with your analysis of the price movements, delivery trades require you to be patient and look out for the long-term potential of a stock.

A trader needs to consider various factors before taking a position. Especially for intraday trades, factoring in the liquidity and volatility of a share is essential. If the shares are not liquid enough then the price movement may not happen at all or if it happens it will be abrupt which may not be ideal for an intraday trader. For delivery trading, liquidity is not that significant as a trader has time on their hands and can wait for long periods.

Similarly, an intraday trader also looks for a stock that may be slightly volatile as this allows them the desired price movements to capitalise on. While delivery traders rely on fundamental analysis to analyse the long-term potential of a share, intraday traders rely on technical analysis. It is important to consider all factors and aspects of delivery and intraday trading before you start.

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Frequently Asked Questions on Intraday Trading and Delivery Trading

Both forms of trading can be profitable if done with due diligence. Intraday trading may aim at small profits at regular intervals while delivery trading aims at significant profits over the long term.. For a beginner, delivery trading is an ideal form to start with as they get ample time to review the price movement in the position taken and make decisions as compared to intraday trading.

The trade settlement for intraday trading happens on the same market day and the profit and losses are settled accordingly. In delivery trading, the settlement happens when the shares are delivered to the investor’s Demat account. The delivery of shares happens after T+2 days. Here, T is the day of trade.

Yes, there is a margin difference between intraday and delivery trading. Conventionally intraday trading requires a low margin and delivery trading did not have the benefit of margin. However, with stockbrokers like Bajaj Financial Securities, a trader can get margin on their delivery trades as well with the MTF feature. The margin available on delivery trading is up to 3.5x.

Both forms of trading have their advantages and disadvantages, a trader should keep in mind all the factors before starting their journey. Delivery trading is like investing and that is something that everyone can participate in. As it does not require a lot of time and analysis. Intraday trading will require your complete attention and you will also have to be analytically sound to succeed as an intraday trader.

Brokerages are different for different stockbrokers and vary between discount and full-service stockbrokers. The standard brokerage in the market among discount stockbrokers is Rs. 20 per order. With Bajaj Financial Securities this can be as low as Rs. 5 per order, with the Bajaj Privilege Club subscription plan.

Although traders can invest, however, it is not recommended, as liquidity is an important factor for intraday trading. If the stocks are not liquid, it may be difficult to square off the order at a desired price & time.

A stop-loss order is an important part of trading. It is an order opposite to the position taken by a trader that is used to control and restrict losses if the trade is moving in the opposite direction for a trader.

There is no such guaranteed strategy in Intraday trading. Traders come up with their strategies using multiple indicators like MACD, RSI, Bollinger Bands etc., A trader needs to prepare their strategy by keeping in mind their risk appetite, the leverage they are using and the price trends of the stock they are investing in.

Value investing is a specific style of investing where a trader buys a share that is undervalued according to their analysis and expects it to rise significantly over a course of time. Warren Buffet is a popular value investor who has made this term popular amongst the masses.

Delivery trading involves lesser risks as it is usually without margin and can be held onto for years. Intraday trading involves margin and must be settled on the same day, thus, volatility in the market can significantly impact an intraday trade. For a beginner, delivery trading is much safer than intraday trading.