Trading in stock markets can be done through short-term buy and sell or as a long-term investment. Both these routes can help an investor fetch money, provided he/she understands the markets and has the capability to study a company carefully before making an investment. The short-term vs. long-term choice depends on an investor’s investment objective and the trading route chosen by the investor, whether intraday or delivery-based trading.
Investors who do not wish to stay invested for a long-term period can opt for intra-day trading. This involves daily and close tracking of the markets for intraday movements to gain profits. On the other hand, there is also the option of delivery trading, which may suit long-term investors.
Let’s understand these two forms of trading in detail.
What is intraday trading?
Intraday trading involves buying and selling of shares on the same day. Here, investors:
- must explicitly tag their trades as intraday
- should not miss placing the trade order as intraday trading
- should square off their position before end of trading day
Failure to square off positions at the end of day will automatically result in positions being squared off as per the closing market price as per specific brokerage terms.
Features of intraday trading
Here are some of the noteworthy features of intraday trading:
- This type of trading requires comparatively lower capital investment since an investor or trader can make a portion of the full payments, thereby buying shares on margin. Similarly, an investor can short sell, without actually buying the stock, if the price of the stock is expected to fall on the same day.
- It allows investors to make the most of the price trends by identifying them early on.
- It does not require long-term capital investments, thereby allowing sufficient liquidity in the hands of the investor.
- Since these are leveraged trades, if not monitored closely, they can result in additional losses.
What is delivery trading?
In delivery trading, an investor gets the ownership of purchased stocks until he/she decides to sell them. This way, the investor can hold the stocks for days, weeks, months or even years, depending on his/her investment goals.
Thus, if a stock does not perform as per an investor’s expectations, he/she does not have to sell it at a lower rate and incur losses in the short run. Instead, the investor can hold on to the investment if he/she has done a detailed analysis of the company and believes that the stock may perform well in the future and result in profits in the long-run.
Features of delivery trading
Some of the important features of delivery trading are as below:
- This type of trading does not involve any time limit for selling stocks and an investor can retain stocks as per personal investment preference.
- Investors can fetch earnings like dividend, bonus and rights issues, etc. This acts as additional income apart from profits to be generated from the investment, if any.
- It doesn’t involve the risk of losses from short-selling.
- An investor must pay the entire value of the transaction up front in such trades. Thus, an investor may incur opportunity cost of capital while also facing liquidity crunch in some cases.
|Did you know?Rakesh Jhunjhunwala, one of the most well-known investors in the Indian stock markets, adopted day trading or intraday trading in his early days as an investor. After gaining sufficient wealth through intraday, he moved to long-term investing through delivery trading. Today, his net worth is estimated to be around USD 580 crores and is majorly attributed to his ace investment and trading strategies.|
Difference between Intraday trading vs Delivery
The table below highlights the main differentiating factors between delivery and intraday trading:
|Ideal for||Investors who have a long-term approach towards investment.||Ideal for speculators and short-term investors who are looking for quick profits. This type of trading is generally undertaken by investors who have a higher risk appetite.|
|Objective||The objective of investors who indulge in delivery trading is to earn profits but without continuously trading. This mode involves using sound investment strategies.||The main objective here is to to take the advantage of fluctuating stock prices and fetching instant profits.|
|Stock delivery||Delivery trading involves delivery of purchased stocks into a demat account.||No delivery of stocks since positions are squared off on the same day.|
|Timeline||Here, investors do not have to follow specific timelines as they can sell any held securities as per individual choice.||Since intraday trades are executed and squared off on the same day, investors cannot hold only stocks for long-term.|
|Focus||Investment through the delivery trading approach requires an investor to consider the macroeconomic factors that guide the market. Investors must therefore focus on company research, industry understanding, knowledge of political and economic reforms, etc.||For earning profits through intraday trading, investors must focus on certain microeconomic factors like technical understanding of price charts, hourly market movement monitoring, etc.|
Which to choose – intraday trading or delivery trading?
The choice between intraday and delivery trading mainly depends on how an investor prefers to plan and execute the trades. While intraday trades require a good understanding of related news, technicals, and charts, delivery trades are more focused on fundamentals like industry attractiveness, company standing, etc.
Intraday trades often involve lower brokerage cost as compared to delivery trades. While intraday trades focus on churning capital, delivery trades are more about identifying growth opportunities for long-term value creation. Therefore, the choice between the two entirely depends on an investor’s personal trading strategy and approach.
Those who have a long-term investment approach may gain substantial rewards through delivery trading, especially when short of time to regularly review an investment portfolio. Investors who have a good hold on technical analysis, reading chart patterns, and sufficient time to monitor market movements can make the most of intraday trading. In either case, it is important to remember that a stock market investment requires a good understanding of both fundamentals and technicals to avoid losses and make profits.
Intraday traders should avoid investing in illiquid stocks, as it will be difficult to square off positions at the end of a trading day.
A stop-loss order is where a trader instructs the broker to buy or sell a stock at a specific price once the price levels reach a predetermined level.
There are many intraday trading strategies, including momentum trading strategy, moving average crossover strategy, breakout trading strategy, etc that can be adopted by investors.
Value investing is one of the approaches of delivery trading, wherein investors pick stocks that are trading at lower prices as compared to underlying book value. These are stocks that are underestimated by the market and are identified by investors through intensive financial analysis.
Delivery trading can be safer than intraday trading, depending on the approach adopted by an investor. This is because the former allows investors to benefit from marker recoveries as against intraday trading, which carry the risk of loss due to same day square offs.