Delivery vs Intraday Trading – Which one is right for you?

Introduction to Intraday Trading

When you are a beginner, you should familiarize yourself with different investment techniques.  Investors or traders who do not prefer to invest for short term opt for delivery of stocks, whereas those who do not want to carry position and are ready to take some risks go for intraday trading.

Although both these techniques of share market investing have a few advantages, as well as disadvantages, the choice is more or less personal. It depends on your risk appetite, investment horizon, expertise, and market knowledge. Let’s explore delivery vs intraday trading and evaluate which one would suit you better.

What Is Intraday Trading in the Stock Market?

The term intraday trading also refers to day trading. It refers to a trading technique where an investor buys and sells a certain quantity of shares within the trading hours on the same trading day. The motive behind using this trading technique is to make profits by using market volatility within a trading day.

If a trader chooses to initiate a position (long or short) for intraday trading, it becomes mandatory for him or her to square off or close his or her position before the end of the trading day. If a trader fails to square off his or her intraday position even after the cut-off time, the stockbroker usually automatically squares them out. If a trader expects the stock price to rise, he will take a long (buy) position and earn a profit by selling it at a higher price before the market closing. On the other hand, if he is bearish about the market, he will take a short (sell) position and earn a profit by buying the stock at a lower price on the same day. However, there is an equal risk of losing money if market movement is not as per your expectation.

Key Advantages of Intraday Trading

As we have mentioned before, both intraday and delivery trading has a few advantages, as well as disadvantages. Let’s learn about the prominent advantages of intraday trading first:

You can trade by paying a partial amount

The most notable advantage of intraday trading is that it allows you to trade large quantities of stocks even if you do not have the requisite money. It’s because stockbrokers allow leverage for intraday trades. It means you can buy or sell a certain quantity of stocks by paying only a small percentage of the required amount. This way, you can make greater profits by investing a small amount of money and increase your returns on Investments (ROI). However, leverage works as a double sword and can increase the loss if market movement is not in your favour.

It offers high liquidity

Since intraday trading positions have to be squared off within a trading day, you can enjoy high liquidity. Your funds are tied up only for a few minutes or hours and not for multiple days. It means you can use your money anytime for the purpose you deem fit. The short time frame also protects your investments from overnight risks.

You can take long or short positions

With intraday trading, you are allowed to take both long and short positions. It means that you’re not required to buy a share first before you can sell it. If you feel that the market is going to fall, you can take a short position or sell some shares first and then buy them when their prices go down. This way, you can make profits from both bullish and bearish markets.

What Is Stock Delivery and How It Differs from Intraday Trading

When you take the delivery of shares by buying them for a time horizon that could be from one day to years, it is known as delivery based investing. Unlike intraday trading, there is no compulsion of squaring off your active positions within the same trading day in the case of delivery. You can buy and hold the shares for as long as you want before selling them to make profits.

The main advantage of delivery based investing is that it involves lesser risks as compared to intraday trading. Since you do not have the compulsion of squaring off your active positions within a trading day, the chances of incurring losses reduce. Even if the price of your share falls, you can hold them for as long as you want until your portfolio becomes green again.

However, the disadvantage of delivery trading is that you can’t take advantage of intraday volatility to book profits. Also, your money gets blocked until you decide to sell your holdings.

What Is Stock Delivery and How It Differs from Intraday Trading

Once you know the advantages and disadvantages of both methods, you can decide for yourself which one is right for you. While intraday trading is risky, it may provide opportunities to you to make large profits in short periods. On the other hand, delivery is less risky and allows you to stay invested in the market for the long term to create wealth.