Stock market trading is an excellent way to build a corpus for the future or create a side income. But there are so many different ways to trade. For instance, you might be wondering whether to choose intraday trading or delivery trading. In the ‘intraday vs delivery’ debate, it should be mentioned that both segments provide the scope for profits. However, before you make a choice, it would help to understand how they work.
What is intraday trading?
An intraday trader buys and sells stocks within a trading day. Such a trader can take a position (whether long or short) at market opening but must square off that position before the markets close for the day. The goal is to profit from the small fluctuations in stock price that take place throughout the day.
What is delivery trading?
A delivery trader buys and sells stocks over a longer period—anywhere from a couple of days to several decades. Depending on the trader’s financial objectives, the approach used may vary. But in general, the goal is to buy the stock at a lower price, and wait for the price to appreciate over time before selling it off.
Intraday vs delivery trading
Traders have very different approaches when dabbling in intraday or delivery trading. It is important to know the key differences between the two before you start trading on the stock exchanges:
- Delivery: When you place a delivery order, the stocks you buy are transferred to your demat account. In case of an intraday order, however, you do not hold the stocks. You simply borrow them from the holder by taking long or short positions based on market conditions and price trends.
- Ownership: In a delivery trade, you own the stocks that you buy. But intraday traders never take delivery of the stocks they trade. That is why intraday stocks are not part of the holdings of intraday traders.
- Timeframe: Delivery traders can hold on to stocks for as long as they like, whether a few days or many years. But intraday traders have to close all trades by the end of each day.
- Price movement: Short- and long-term price appreciation is the goal of delivery traders. In intraday trading, the aim is to make several small gains off multiple trades within a single working day.
- Margins: Both delivery and intraday traders can use margin funds (a type of trading loan) from their broker. But intraday traders get higher margins because they close their trades within a day.
- Stock selection: In delivery trading, the fundamentals are important. When buying a share you study the company’s governance, scope for growth, competitive pressure, and other details. But in intraday trading, you look at the technical aspects, especially volatility and liquidity.
- Corporate action: Delivery traders own the stocks they buy. So they benefit from corporate actions like dividend and interest payments, bonus issues, and rights issues. These advantages are not available to intraday traders because they do not own the stocks.
Which should you choose?
Intraday traders have to be able to read technical charts, identify price patterns, and plan detailed strategies in advance. Meanwhile, delivery traders need to research the fundamental aspects and pick quality stocks that will appreciate over time. Both styles have their risks and advantages. If you cannot choose between the two, why not try both? Open an account with a full-service broker like Kotak Securities to get a taste for how it all works.