Monday, 6 April 2015

What is the difference between Intraday Trading and Delivery Trading?

When you buy and sell a stock within the same day, it is called Intraday Trading. When you purchase shares and hold them overnight, then you take delivery of the shares and hence, this is called Delivery Trading.
You can trade in two different ways in share markets. You can either do intraday trading or you can opt for delivery based trading (investment). Intraday trading is typically completed within a day – this means that you have to sell the shares that you have purchased on that day before the closing of markets. Even if you don’t sell the shares by yourself, they are automatically squared off before the closing. On the other hand, in delivery based investments, you are not required to buy and sell shares within a day and you can hold them for as long as you want.
Advantages
There are quite a few advantages of Intraday Trading, the biggest one being that you are allowed to buy shares without paying the full price of the shares (Paying only the margin money). The market makers allow you pay only a part of the price to hold the shares. So, you can gain more by investing less. But this means that your losses would be higher as well. Intraday trading also allows you to short sell the shares – selling shares even before buying them (but buying before market closes). This is one benefit that can give you profit even when the price of the share is sure to fall. 
The brokerage for intraday trading is always lower than that for delivery trading.
DisadvantagesOne of the biggest disadvantages of intraday trading is the time frame. No matter how confident you are, you have to sell the shares within a day. So, if the share loses price, you are sure to lose money too. You also do not get the benefits of long term investment like dividends, bonuses etc. in intraday trading. Another negative aspect of intraday trading is that it can become quite stressful as you need to monitor the markets continuously. And with daily profits and losses, it can take a toll on a trader’s mental well being.
Choosing between Intraday & Delivery Trading
Unfortunately, the lure of quick money sucks in investors who should ideally stay away from intraday trading. Intraday traders buy shares for just few minutes or hours whereas delivery traders might buy for months or years.
Now if you, as an intraday trader can judge the mood of share prices at regular, small intervals, only then should you think of intraday trading. You must be good at technical analysis. There are many technical tools that also help in predicting short term share price movements. Fundamentals play smaller role in intraday trading.
But if you think long term investing is better suited for you and you pick shares on the basis of evaluating a company’s intrinsic value, etc., then delivery based trading is what you should be looking at.

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