Understanding the Difference between Intraday and Delivery Trading
When it comes to the stock market, there are two types of trading that investors can undertake, namely intraday and delivery trading. While both these methods of trading involve buying and selling stocks, they differ in terms of time horizon and intent.
Intraday Trading
Also known as day trading, intraday trading involves buying and selling shares within the same trading day. Typically, the traders who engage in intraday trading look to profit from the price volatility that occurs during the trading day by taking advantage of small price movements in stocks. In intraday trading, the positions are usually squared off within the same day, with no stocks actually being held in the demat account.
Intraday trading involves taking quick decisions based on a range of factors such as technical analysis, market trends, and news pertaining to the stock or the sector. It also requires traders to have solid risk management strategies, as intraday trading can often be an extremely fast-paced and high-risk endeavor.
Delivery Trading
Delivery trading, on the other hand, is a longer-term approach in which an investor buys shares with the intention of holding onto them for an extended period of time. The transactions in delivery trading typically take two days to settle, and the shares are physically transferred from one demat account to another.
The objective of delivery trading is to create wealth by leveraging the power of compounding, which occurs when an asset generates returns that are then reinvested to generate even greater returns. Investors who engage in delivery trading have to focus on the fundamentals of the stock, such as the company’s earnings, management quality, and growth potential.
The Key Differences
The main difference between intraday and delivery trading is the time horizon of the trading activity. Intraday trading involves a fast-paced approach, where traders aim to make quick profits within the same trading day. In contrast, delivery trading is a longer-term approach where investors aim to generate wealth gradually over time.
Another key difference is the objective of each approach. While intraday traders aim to profit from quick price movements, delivery traders aim to create wealth through the power of compounding.
Finally, intraday trading is a higher risk form of trading, as it involves making quick decisions based on short-term market fluctuations. Conversely, delivery trading is a lower risk approach that involves focusing on the fundamental strength of the stock over the long term.
In conclusion, both intraday and delivery trading styles have their advantages and disadvantages depending on the risk appetite, investment horizon, and financial goals of an investor. As such, it’s important to understand the differences between these two styles of trading before deciding which approach is best suited to your investment strategy.
Table difference between intraday and delivery
| Parameter | Intraday Trading | Delivery Trading |
|---|---|---|
| Definition | Buying and selling of stocks on the same trading day | Buying and holding the stocks for more than one day |
| Time Horizon | Short-term | Long-term |
| Objective | Profit from short-term price movements | Profit from long-term price appreciation |
| Risk | High | Low |
| Return | High potential for quick gains | Lower potential gains but more consistent |
| Capital Requirement | Low to moderate | Higher capital requirement |