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Intraday vs Delivery Trading | Advantages & Disadvantages

intraday vs delivery trading

In Intraday trading, you do not have to take the possession of the financial instruments you have bought or sold during the day. Your position will be squared off at the end of every day. Whereas in delivery trading, you can only carry forward the assets you have purchased from the market to the next day or next couple of days, weeks, months or years.

Whether you should choose intraday trading or delivery trading completely depends on your objective and purpose of getting into the markets and also your availability of time. If you have a lot of time during the day which you can devote to the stock markets, then you can easily do intraday trading and can take home the earnings you make everyday. However, if you do not have time to spare due to a busy schedule, then intraday trading might not be the most suitable option for you. You can instead choose for delivery trading and hold your positions for a couple of days or weeks, and exit accordingly.

The strategy for both will be completely different. However, the research tools used for both the types of trading may be same. Let’s understand in further detail about these two different forms of trading.

What is intraday trading?

Intraday trading can be defined as buying and selling of financial instruments such as stocks, shares, currency, commodity etc. on a daily basis without taking ownership of the securities overnight. Both the actions of buying and selling of a particular financial instrument are carried out within the trading hours of a particular market or exchange. In case of stock markets in India, the intraday trading orders are placed between 9:30am and 3:30pm.

What is Delivery Trading?

In delivery based trading, stocks or financial securities such as futures, options or currency do not need to be bought and sold in the same day. You can buy the shares and keep them with you for an indefinite period of time. However, derivative instruments such as futures and options expire after a fixed time period. In delivery based trading, the purchased securities are delivered to you in your demat account and hence it is called Delivery trading.

Advantages of intraday trading

There are many benefits of investing you money in intraday trading.

• In you invest in intraday trading then you can make profits while the markets are falling as well. This is possible through ‘short-selling’. Short selling is the process of selling a stock at a higher price in and later buying the same when the prices reduce.

• Another benefit of intraday trading is that all your positions in the market are closed on the same day, which means you do not have to worry about your money at night thinking about how the stock markets will open the next day. Your money does not get ‘stuck’ in the stock markets overnight.

• Availability of margins is another big benefit of intraday trading. Stock brokers offer special margins to intraday traders under which, traders have to only pay a small amount of the total order size as leverage against any losses.

• Another additional benefit of intraday trading is that intraday trading has proved as a regular scope of earning for many people as the money earned from the markets can be withdrawn on a daily basis.

These benefits make intraday trading interesting and beneficial for many traders who bet their money here.

Disadvantages of intraday trading

Apart from the above mentioned benefits of intraday trading, there are many disadvantages to it as well.

• In Intraday trading not all days will give you double digit profits. There are bound to be some days when the markets will not move in favorable direction and you may end up losing out on your investment capital.

• Every intraday trader has faced loss in the stock markets. The possibility of losing out is present on every day in the stock markets as markets are unpredictable. Hence, for a person who cannot risk his money, it does not make sense to invest the same in intraday trading.

• Also, for excelling at intraday trading, you need to study and do you research well. You should have a properly framed trading plan which would cover the aspects of what type of stocks to pick, the strategies to use, when to enter the trade, when to exit it etc. All these aspects related to intraday trading require a lot of practice and time as well. Hence, if you cannot spare time for this research, you should not invest in intraday trading.

Advantages of delivery trading

Just as there are benefits of intraday trading, there are several benefits of delivery based trading as well.

• In delivery trading, you do not need to sell the security on the same day. If supposed the stock you bought has neither hit the target nor hit the stop loss, then you can carry it forward to the next trading session, with the hopes of achieving the target the next day. However, in intraday trading, the broker will square off your position at whatever level the stock price is at the end of the day.

• Another benefit of delivery trading is that if you invest your money for a long term, you can earn long term capital gains such as bonus, dividends, rights issue etc. Also, one benefit of delivery based trading is that you do not need to devote your time in it as much as you need to devote in intraday trading.

• Delivery trading as compared to intraday trading is much less risky as we can wait for the prices to recover.

Disadvantages of delivery trading

• The flip side of the coin with respect to delivery trading is that the capital needed to invest in delivery based trading is much higher as compared to the capital needed to trade in intraday trading. Stock brokers also often charge a higher brokerage for delivery based trading as compared to intraday trading.

• Another disadvantage of delivery based trading is that you cannot withdraw your profits on a daily basis and in fact profits in delivery based trading are largely dependent of major macroeconomic factors and the direction of the economy, unlike in intraday trading.

• In delivery trading there is always an overnight risk involved.

CONCLUSION:

Both delivery based trading and intraday trading have their set of pros and cons. However, it all depends on your attitude and priorities as to whether you choose to go with intraday trading or delivery based trading. If you are confused between the two, you can always consult a certified investment advisor to get a clarity on your risk appetite and most suitable trading style for you.

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