Delivery Trading vs. Intraday Trading: A Guide for Investors

Every trader or investor dream of making big money in the stock market similar to personalities like Rakesh Jhunjhunwala or Warren Buffet. But only a few actual managed to achieve it.

There is no rocket science behind understanding the fundamentals of a company, what matters is persistence. Well known investors like Warrent Buffet or Mark Mobius stay invested in their portfolio for a long period, decades even.

While this type of long-term investment isn’t everyone’s cup of tea, it still gives you the expected returns. But this doesn’t mean that you won’t be able to make money in the short-run.

For individuals who are not interested in long term investing can consider intra-day trading. This is the place where millions of investors try to make a fortune every day by tracking the market very closely minute by minute.

However, before, you as an individual, venture into stock market, let’s understand the background on trading.

Types of trading

An individual can trade in two different ways in share market – delivery or intra-day.

What is intraday trading?

In this mode of trading, an individual buys and sells shares on the same day during the market hours.

What is delivery trading?

In delivery transactions, an investor is not required to buy and sell shares within the same day. In such transactions, the individual can hold the shares for a longer-term depending on his/her willingness. The duration can range from two days to even two decades or more.

Advantages and disadvantages

Intraday and delivery have both pros and cons of their own. Let us see the advantages of intraday first –

Advantages of intraday

• Allowed to buy shares on margin

The market makes allow an individual to pay only a part of the full price; thus, a trader can technically gain more by investing less.

• Allowed to short sell

If an individual believes that the price of a stock is likely to fall during the day, he may sell the shares without even buying at the first place or holding from previous transactions. Later, during the day, depending on the profit, the individual can buy the stock at a lower price to book profit. Note that, it forms a part of derivatives trading. To know more on this, click here.

• Catch the price trends early

One of the key advantages of intra-day trading is that, when there is a price correction or upward trend in prices, you can catch the wave early.

For instance, if you had purchased a share of a company XX in agri-sector today. And during the market hours, Government makes a favourable announcement for agricultural sector. This could be increase in MSP or reduction in import duty of raw materials (required for fertilizers or some subsidies for the companies in the industry. Then the stock reacts positively and the prices surge. Intra-day traders can make a quick money by selling the stocks, before the prices come back to range-bound.

Disadvantages of intraday

• Time frame

Remember the market can’t be timed and you can’t predict things irrespective of the tools you use. Thus, if the stock moves in the direction opposite to what you anticipated, you can’t hold the stock for the next day as the position is cut off automatically. Thus, you will have to book losses come what may.

• No dividend or other benefits such as bonus, rights

In intraday trading, you do not hold the stock as on the record date of the dividend, bonus, rights issue and stock spilt.

• Required to be monitored closely

An individual is required to track minute by minute the market.

Advantages of delivery trading

• Holding stocks for long-term

If you believe in the business and fundamentals of a company and believe the company to perform well, you can get the benefit by remaining invested in the stock. Also, if your stock didn’t perform well in the short-term due to any reason, you don’t need to book loss if you believe that the stock can do well in the long-run.

• Safer than intraday

The risk in delivery is comparatively lower than intraday, where the profit and loss are booked the same day.

Disadvantages of delivery

• Blocking funds

You need to buy stocks by paying the full amount of each share. Thus, your funds are until you decide to sell your holding.

Which one should you go for?

According to many market experts, long-term investment gives better rewards than intra-day trading.

Long-term investment or delivery could be a useful investment strategy for those who have less time to review their portfolio on a daily basis.

However, those who are strong in technical analysis and are quick to read chart patters and have lot of time to spare can consider intra-day trading.

Whichever choice you make when it comes to the stock market, know your ground, be it fundamentals or technials. It helps to avoid losses if not make profit.

Disclaimer: The views expressed in this post are that of the author and not those of Groww