If you are new to the world of trading, you may have come across terms such as Intraday and Delivery Trading. These two styles of trading are very different. Each with its own pros and cons. Whereas, Delivery Trading is when the trader does intend to carry their position overnight for as little as one day, but can also go up to several weeks or months depending on their analysis.

Let’s discuss why a trader might decide to adopt a particular style of trading. It is important to note that a well-seasoned trader can choose to perform both these styles of trading at the same time if profit is expected to be made.

Intraday vs Delivery Trading

What is Intraday Trading?

In simple terms, Intraday Trading is when a trader takes positions during market hours and does not carry forward their positions to the next day but rather squares it off before the market closes. An easy-to-understand example of Intraday Trading is: Suppose before the market opens, there have been talks that the government is willing to provide relief to the steel export sector by cutting taxes. In such an event, it is fairly reasonable to expect there to be buying activity in the shares of the companies that cater to this particular sector. Here, Intraday traders add these companies to their watch list and look for buying opportunities.

Another example could be that the stock has broken above its 50 day moving average. This is a sign of bullishness and traders can choose to ride that trend by participating in intraday trades.

An important point to note is that in case the trade goes against the trader’s expectations, they must square off their position even though they make a loss since they have adopted the Intraday style of trading. The reason this cannot be avoided will be cleared up in the points below

What are the advantages that Intraday Trading has to offer?

We understand what rules one must follow when it comes to intraday trading. But why would one wish to choose this method? Below are the Intraday Trading pros that attract traders:

  • Margin Funding: This is the most important reason why traders decide to adopt this style of trading. The capital required is minimal since the broker offers them x10 or in some x20 margin depending on the scrip. For example, broker ‘xyz’ has allowed a margin of x10 for ‘scrip A’. This means that a trader could purchase 10,000 rupees worth of Scrip A with a capital of 1,000 rupees. The catch here is that the trader must square off their position before the market closes, no matter what. If in case they do decide to carry forward their position, they must add the remaining balance, i.e. 9,000 rupees.
  • Low Brokerage: To attract traders, brokers offer various perks such as low brokerage and high leverages. The low brokerage would mean that the trader could be profitable even with small movements in the share prices.
  • Liquidity: Since Intraday Trading has various perks and advantages, there are many who are doing it. What this leads to is liquidity. Liquidity in simple terms is that there is a high chance that an order will get executed instantly. This is because there is a seller willing to sell at that exact price.
  • No Risk of overnight changes: It is common knowledge that events occur overnight that can change the direction of the stock market. An intraday trader does no have to deal with this risk since they have no open positions. Whether they are profitable or not is decided within the span of a single trading day and that’s it.

What are the disadvantages that come with Intraday Trading?

  • Possibility of Losses: Since the price movement is expected to happen within a single day, there are chances that it just might not. In such events, the trader is forced to close their position and try again the next day. It can be disheartening if this happens very often and calls for a review of the trading strategy.
  • Time in front of the screen: The trader does need to be available to make decisions and pay attention to what is going on in the market when trading this way. This would mean that this style of trading cannot be done when on the job.
  • No Dividends: Since Intraday traders are only in it for a day, they are not entitled to participate in the company meetings. Nor are they entitled to dividends that the company decides to offer.

What is Delivery Trading?

Delivery style of trading is where a trader chooses to make profits by being invested in a stock for a few weeks or months depending on their study. Here the trader actually purchases the shares and get they get credited to the Demat account.

An example here would be: Suppose ‘Company A’, a market leader in its industry with clean Fundamentals, has fallen significantly due to overall negative market sentiment. This fall in that company’s share price was not because the company started making losses or anything, but simply because there was an overall selling sentiment in the entire market. Now since the company is fundamentally strong, it is fair to expect its share price to go up. Here a trader would purchase the shares of that company and exit when they are satisfied or believe that the price will not go up any higher. Delivery Trading is also called Positional or Swing Trading.

What are the advantages that Delivery Trading has to offer?

  • No Pressure to Exit Position: Since the trader is not choosing an intraday order, they can remain in the position for as long as they like even if the share price goes down from the point at which they purchased it.
  • Can be done part-time: Since this style of trading does not require the trader to remain active all the time, it can be done along with a job. Checking the positions once a day is more than enough to see where things are headed.
  • Dividends: Since the shares get credited to the Demat account, the trader is eligible for benefits such as dividends if the company decides to announce it during the time the trader is in the position.

What are the disadvantages that come with Delivery Trading?

  • Targets may take long to be met: Since it is not possible to perfectly time the market, delivery trading has the possibility to go against the trader before things start to get better.
  • No Margins: Delivery Trading does not offer any margins. This means that the trader will require a large capital if they want to make large returns.
  • Overnight Changes: Since the trader is basically invested in the company with this style of trading, there is a possibility of overnight events that could negatively affect the market, and in turn prolong the time it would take for the trader to reach their target.

FAQs:

Which is better, Intraday or Delivery Trading?

This completely depends on which style is best suited to your current situation. If you are able to allocate time during the day to remain active in front of the screen, you could choose to do Intraday trading and swing trading together. However, if you have a day job, it becomes difficult to do so, and Delivery Trading would be more suitable.

Can I convert Intraday to Delivery?

The answer is yes. But in order to do so, you must have the complete capital required to hold those number of shares you purchased with margin funding.

Can I sell delivery shares on same day?

Yes you can choose to sell your shares within the same day as you purchased them with the delivery order.

Is Intraday Profitable?

Yes, Intraday Trading can be profitable if you have a solid strategy. The strategy should be such that it puts you in a good profit to loss ratio.

Can I Buy 10000 Shares in Intraday

Yes, if you have the capital with the margins allowed, you can most certainly do so.

Can I sell Delivery Shares the next day?

Yes, you can sell delivery order purchased shares the very next minute if you decide to do so.

References:

Baralis, Elena, et al. “Discovering profitable stocks for intraday trading.” Information Sciences 405 (2017): 91-106. https://www.sciencedirect.com/science/article/pii/S0020025516307290

Lien, Kathy. Day trading and swing trading the currency market: technical and fundamental strategies to profit from market moves. Vol. 431. John Wiley & Sons, 2008. https://books.google.com/books?hl=en&lr=&id=vRuWAAAAQBAJ&oi=fnd&pg=PA1&dq=swing+trading&ots=1I6BeK3A9r&sig=KYkSY2r2usPoXWi75AX5M8v3Y9Q

Krishnan, R., and Vinod Mishra. “Intraday liquidity patterns in Indian stock market.” Journal of Asian Economics 28 (2013): 99-114. https://www.sciencedirect.com/science/article/pii/S1049007813000596


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