Difference Between Intraday Trading and Delivery Trading

The difference between intraday and delivery trading is that buying and selling shares during a single trading day is intraday trading and when you do not square off your position, your trade becomes a delivery trade. Strategies differ for intraday and delivery-based trading.

It may not be easy to really understand intraday trading without seeing how it contrasts with delivery-based trading. Let’s pit the two trading options and see how they compare.

WHAT ARE INTRADAY TRADES?

Intraday trades involve buying and selling a stock within a trading session, i.e. on the same day. If you do not square your position by the end of the day, your stock can be sold automatically at the day’s closing price under certain brokerage plans. So check with your broker about automatic squaring off.

Most traders initiate an intraday trade by setting a price target for a stock and buying it if it is trading below your target; they then sell the stock when it reaches the target. Or, if they feel the stock will not reach the target before the market closes for the day, the intraday traders sell it at the best price possible.

ADVANTAGES AND DISADVANTAGES OF INTRADAY TRADES

To understand the difference between intraday and delivery trading, you should know their pros and cons. Outlined below are some advantages and disadvantages of intraday trades.

Advantages of intraday trades

Low capital: Intraday traders often use margin funds when taking positions. This way, they get to place a larger trade while paying only a small amount upfront. Their broker provides the additional funds for the trade. Thus, the trader is able to a bigger position than their capital would allow. This pushes up the potential for profit as well.

Intraday traders often use margin funds when taking positions. This way, they get to place a larger trade while paying only a small amount upfront. Their broker provides the additional funds for the trade. Thus, the trader is able to a bigger position than their capital would allow. This pushes up the potential for profit as well. High liquidity: Intraday positions have to be closed within a single working day. This means the capital invested is tied up for only a few hours. The short timeframe also enables traders to book profits quickly based on price fluctuations.

Intraday positions have to be closed within a single working day. This means the capital invested is tied up for only a few hours. The short timeframe also enables traders to book profits quickly based on price fluctuations. Low brokerage: Brokers generally charge lower commissions on intraday trades compared to delivery trading.

Brokers generally charge lower commissions on intraday trades compared to delivery trading. No overnight risk: Here, trades are squared off before market close. So, intraday traders are protected in case the markets shift after hours. This may happen, for example, following the release of adverse news.

Disadvantages of intraday trades

Risk of loss: The time window to close positions profitably is very small. If the market moves adversely during the trading day, the trader could incur losses. These losses could be magnified if the exposure is high.

The time window to close positions profitably is very small. If the market moves adversely during the trading day, the trader could incur losses. These losses could be magnified if the exposure is high. Constant monitoring: To gain as an intraday trader, one must track market movements closely. This may include toggling between screens to look at different data and charts. The monitoring helps to identify the best time to enter or exit a position. But it requires some knowledge of technical analysis and can prove stressful.

To gain as an intraday trader, one must track market movements closely. This may include toggling between screens to look at different data and charts. The monitoring helps to identify the best time to enter or exit a position. But it requires some knowledge of technical analysis and can prove stressful. No corporate benefits: Intraday traders don’t take delivery of any stocks. As a result, they do not own these assets. So, naturally, they do not enjoy dividend payments and other benefits like bonus or rights issues.

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.

ADVANTAGES AND DISADVANTAGES OF DELIVERY TRADES

You already know the pros and cons of intraday trades. Now, let’s examine the advantages and disadvantages of delivery trading. This could help you to compare intraday trading vs delivery trading in a better way.

Advantages of delivery trades

No time limit: Delivery traders are free to hold on to stocks for as long as they like. This could range anywhere from a few days to several months. If a stock did not perform well in the short term, there is no need to book losses right away. If the stock is good, the trader could hold on for the long term

Delivery traders are free to hold on to stocks for as long as they like. This could range anywhere from a few days to several months. If a stock did not perform well in the short term, there is no need to book losses right away. If the stock is good, the trader could hold on for the long term Losses are limited: When buying shares for delivery, traders pay the full value of the shares upfront. So, if the trade does not go as planned, their loss is limited to the purchase price. In comparison, margin traders could face massive losses if their trade moves negatively.

When buying shares for delivery, traders pay the full value of the shares upfront. So, if the trade does not go as planned, their loss is limited to the purchase price. In comparison, margin traders could face massive losses if their trade moves negatively. Corporate benefits: By taking delivery of shares, traders become part-owners of the company. They become eligible to receive regular dividend and interest payments. They may also get other benefits such as bonus and rights issues.

Disadvantages of delivery trades

Low liquidity: Delivery traders miss out on the benefits of margin funding. They have to pay the full sum when buying stocks. This entire amount remains blocked until the stock can be sold.

Delivery traders miss out on the benefits of margin funding. They have to pay the full sum when buying stocks. This entire amount remains blocked until the stock can be sold. No leverage: Delivery traders are limited in their trades by the amount of capital they actually have. The option of higher leverage is not available. This limits the potential for big returns as well.

HOW DO INTRADAY TRADES DIFFER FROM DELIVERY TRADES?

THE IMPORTANCE OF TRADING MARGINS

Another 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 Rs.1,00,000. Meaning, you pay 10% of the amount as margin. Kotak Securities offers multiples as high as 50x.

Margins 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%. But remember, margin trading can amplify losses too in a similar way.

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

Your approach to intraday trading should be very different from delivery trades. Here is how:

1. 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 high volumes because 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. This can be hard in the absence of high volumes. Long-term trades depend less on volatility because you can defer selling a stock until it reaches your target price. Experts also use trading volumes as a key intraday trade indicator. 2. 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 limited. 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 traders may even revise their target upwards and hold the stock for longer to achieve it. 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 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. 3. 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.





What next?

Intraday trading is suitable for traders who can take risks and bear deep losses. If not, it could 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. We will discuss how to convert to delivery in the next section.