When people talk of stock trading, two main strategies get involved; these include intraday trading and delivery trading. Knowing the difference between the two will guide you on which strategy works best for your investment style and your goals.
Intraday Trading
Intraday trading is buying and selling of stocks within the same day. This is a type of trading that generates return on short-term movements in price. The positions close before the markets close, and there is no actual ownership of shares overnight.
Important Features of Intraday Trading:
1. Liquidity of High Nature
As the position will end by the closure of the day, liquidity in intraday trading is one among the inherent features.
2. Minute Moves
The trader would like to catch minute moves in the price.
3. Leverage
The traders use the leverage mechanism of the broker to trade with huge amounts of money using relatively small amounts.
4. Risk and Tension
This strategy involves high risks and demands alertness since the trader needs to observe the movements in the market from time to time.
Delivery Trading
This is one form of trading where a person buys shares and holds it for some time. It may be for days or for months or even more than a year. In this trading mode, the shares are transferred to the free trading account or the Demat account of an investor. In this regard, an investor fully owns the stock.
Main Delivery Trading Characteristics:
- Long term Investment: The investor expects returns from the long term value of the share.
- No Leverage: There is no leverage; you buy only what you can afford.
- Ownership: You hold the shares and only sell when you decide, which eradicates most of the stress involved in this strategy.
- Less Immediate Risk: The market does pose a risk, but there is less concern to a long-term holder as day-to-day fluctuations are less worrisome.
Benefits/Drawbacks of Intraday Trading
Benefits
Rapid returns: Chances of making profits in a shorter time.
Not overnight risk: The position will be closed by the end of trading the day.
Leverage: Traders can invest large volumes with relatively less amount of money.
Drawbacks:
Increased risk: Small price movements produce huge losses
Time-consuming: An individual needs to be constantly monitoring the market.
High brokerage cost of trades: The person has several trades and may incur a lot of brokerage charges.
Advantages and Disadvantages of Delivery Trading
Benefits
Long-term benefits: One can have his stocks for a long period, and the compounding interest will occur
Not very time-consuming: An individual is not necessarily required to monitor the market daily.
Dividend: One can get dividends from the companies in which he holds shares.
Drawbacks
Capital intensive: No leverage, so one needs to have money enough to invest in stocks.
Risk of price in the short term: If the stock prices go down, then the amount of value in stock can hamper the portfolio.
Comparison of Intraday Trading Vs Delivery
Thus, intraday trading would therefore indicate variation in the delivery alternative, based on your tolerance to risk and investment time frame as well as the ability to observe markets.
You could consider intraday trading if it allows you to make quick and short-term profits and you are able to manage some of the high-risk situations; however, you will need the ability to make quick adaptive and timely decision-making while monitoring market dynamics.
Delivery trading is recommended if you have long term plans as well as if you want to save money with a conservative risk. Then, through delivery, you’ll be able to buy shares that will sit in your free trading account and let them build long-term gains without fear of daily changes in price.
Conclusion
Intraday trading vs delivery have their own edge – both beneficial and risky edges. Intraday traders look forward to fast gains aside from market volatility, whereas a delivery trader awaits long-term appreciation aside from the outcome of generating dividends.
So, regardless of what alternate you prefer between intraday trading and delivery trading, make sure that you learn and know the market, do proper research, and use the strategy which suits your financial goals.
