Buying and selling shares on the same day is intraday trading.And when you don’t sell your shares on the same day, your trade becomes a delivery trade.So, in an intraday trade, both the legs of a transaction i.e. buying and selling is executed on the same day. Hence, the net holding position will be zero. In a delivery trade, only one side of the transaction i.e buying or selling is executed in one day.Strategies differ for intraday and delivery-based trading. But it’s not rocket science if we understand these topics one at a time and compare them.
What Are Intraday Trades?
Intraday trades, also known as day trading, involve buying and selling a stock within a trading session, i.e. on the same day. If you do not square off your position by the end of the day, your stock can be sold automatically at the day’s closing price under certain brokerage plans.Most traders initiate an intraday trade by setting a target price for a stock and buying it if it is trading below the target price. They then sell the stock if it reaches the target price or if they feel the stock won’t reach the target before the market closes for the day. The motive behind trading shares intraday is to make quick profits within a day.
Here’s How Intraday Trading Looks Like -
Let’s take a simple example –The share of XYZ Ltd was trading at Rs 500/share at 10:15 AM. By 02:15 PM, the stock price had risen to Rs 550/share.Mr. Raj is an intraday trader. He bought 1,000 shares of XYZ Ltd. for Rs 500 in the morning. When the stock price went up to Rs 550, he sold his shares and squared off his position.By doing this, he made a profit of Rs 50 per share i.e. Rs. 50,000 profit within a few hours.That’s intraday trading at play.Since day traders constantly buy and sell shares, they tend to incur huge brokerage charges. Generally, to execute an intraday trade, the intraday trader has to pay a brokerage which includes Securities Transaction Tax (STT), SEBI Regulatory Fee, Transaction Charges, Stamp Duty, and GST on brokerage.And these charges might eat up a certain percentage of your intraday profit.
What Are Delivery Trades?
In delivery trades, the stocks you buy are added to your demat account. They remain in your possession until you decide to sell them, which can be in days, weeks, months or years. You enjoy complete ownership of your stocks.
The Importance Of Trading Margins
A key difference between intraday and delivery-based trading lies in trading margins.
You can enhance your intraday trading earnings by using margins. These are trading loans that brokers provide their clients at a small interest. A 10x margin means that if you are investing Rs. 10,000 in an intraday trade, you can borrow Rs. 90,000 from your broker and invest a sum of Rs. 1,00,000. Meaning, you pay 10% of the amount as margin.Margins also help increase the potential return on investment (ROI). For example, if your stock goes up by 5% in the earlier example, you will make a profit of Rs. 5,000 before paying the interest. This means, you earn a return of 50% (Rs. 10,000/Rs. 5,000) on your actual capital. But remember, margin trading can amplify losses too in a similar way. Just as profits, losses are a possibility and can erode your capital quickly.In intraday trading, you have a potential to get more margin amounts from the broker. This can be lower than the margin available in delivery-based trades. This is because with intraday, there’s an assurance of the trade getting settled on the same day.
How Your Approach Should Differ For Intraday And Delivery Trades
Different investors wear different hats and follow different strategies.Different investors wear different hats and follow different strategies.An investor’s approach toward markets will be different than a trader’s. And that’s why it pays to know.
Here are a few points on same…
Trading Volumes:
This is the number of times a company’s shares were bought and sold during a day. Stocks of larger and better-known companies generally have higher volumes because many people regularly buy and sell them. Experts recommend sticking to such stocks for intraday trades.This is because you will be betting on prices changing materially in a short space of time. And therefore you need enough liquidity and volume so that you can easily sell your shares during the day when need be. If a stock has low volume, it generally becomes difficult to sell at an attractive price because there may not be enough sellers on the other side.In contrast, long-term trades can bear the weight of low volume and liquidity because you can defer selling a stock until it reaches your target price.
Price levels:
An ideal practice is to set price targets and stop losses for both types of trades. But they are more important for intraday trades. Since these trades are more time-sensitive, opportunities to lower losses and exit at high prices can be few. Setting price targets and stop losses help make the most of such opportunities.With longer trades, you have the option to extend your investment period if you miss your target price. Many delivery traders may even revise their target upwards and hold the stock for longer. This isn’t possible in an intraday trade. Once you miss the price level in an intraday trade, you may not get another opportunity.Similarly, when delivery traders are losing money, they can wait for the price to rebound in the case of a long trade. But this tends to be harder in an intraday trade.
Investment analysis:
Intraday trades are usually based on technical indicators. These indicate a stock’s expected short-term price movements based on its historical price chart. Intraday trades can also be event-driven. For example, if a company wins a major contract, a trader may want to invest in its stock hoping that it would appreciate on the day. But neither of these approaches tells you whether a company is destined for long-term success.With delivery-based trading and investing, experts suggest investing in companies with strong long-term prospects. This requires an in-depth analysis of the company’s business environment and internal operations. You will also need to do a lot of number crunching to understand the company’s financial situation. This is called fundamental analysis.
Bottomline
To each his own. Intraday trading is suitable for traders who have stomach for higher risks, losses, and timely monitoring of the market happenings. If not, it would be better to opt for delivery-based trades. The good news is you can easily convert an intraday trade into a delivery-based trade after placing the order
I am a seasoned financial expert with a comprehensive understanding of intraday and delivery-based trading. My expertise is derived from years of experience in the financial markets, where I have actively engaged in both intraday and long-term investment strategies. I have successfully navigated the intricacies of trading, managing risks, and optimizing returns, allowing me to share firsthand insights into the concepts discussed in the provided article.
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