Difference Between Intraday Trading & Delivery Trading

Intraday and delivery trading are two of the most popular stock market trading strategies. Each has its own set of methods, risks and rewards, so it's critical to fully understand what separates them before starting your trading journey.

Intraday trading, often known as day trading, includes purchasing and selling stocks on the same trading day. It's a fast-paced strategy designed to capitalise on short-term market changes. Delivery trading, on the other hand, is the practice of purchasing stocks and holding them for more than a day, usually for months or years, in order to capitalise on the company's long-term development.

Let's compare intraday trading vs delivery trading, highlighting their important characteristics, advantages, and drawbacks. This guide will help you make an informed decision about which trading style is most suited to your financial goals and risk tolerance.

What is Intraday Trading?

Intraday trading, often known as day trading, involves purchasing and selling financial products on the same trading day. The primary objective is to capitalise on short-term price fluctuations and benefit from market volatility. Traders in this group do not keep positions overnight and complete all transactions before the market closes. This strategy is marked by its high level of activity, frequent transactions, and focus on technical analysis.

Key Features:

• Duration:

  Every transaction is completed on the same day.

• Objective:

  Quick earnings from little price variations.

• Tools:

  Tools include technical analysis, charts, and real-time market data.

• Risk Management:

  Involves using stop-loss orders to limit possible losses.

What is Delivery Trading?

Delivery trading, also known as positional trading, is the practice of buying stock and holding them for more than one day, typically for weeks or years. The emphasis here is on long-term investing, with traders hoping to profit from the stock's general rise over time. Unlike intraday traders, delivery traders seek to construct a portfolio of fundamentally sound equities that may also benefit from dividends.

Key Features of Delivery Trading:

• Duration:

  Holdings are kept for longer than one day.

• Objective:

  Long-term growth and capital appreciation

• Tools:

  Fundamental analysis, which includes company’s financial health and performance.

• Risk Management:

  Involves diversifying one's assets to spread risk.

Advantages of Intraday Trading

• Quick Profits:

  Intraday traders can execute many trades in a single day, gathering profits from little price swings.

• Leverage:

  Brokers frequently provide high leverage, allowing traders to manage larger positions with less cash.

• No Overnight Risk:

  By completing positions before the market closes, traders reduce their exposure to overnight market fluctuations and external incidences.

• Increased Liquidity:

  Intraday trading is often performed in highly liquid markets, allowing for quick entrance and exit from positions.

Disadvantages of Intraday Trading

• High risk:

  The fast-paced nature of intraday trading can result in substantial losses if deals go against the trader. Leverage may increase both earnings and losses.

• Time-consuming:

  Requires continual attention to market moves throughout the trading day, making it inconvenient for people with other responsibilities.

• Transaction Costs:

  Frequent buying and selling might result in increased transaction costs, such as brokerage fees and taxes, reducing earnings.

Advantages of Delivery Trading

• Long-Term Growth:

  By holding on to fundamentally good companies for a longer period of time, investors may profit from the company's long-term growth.

• Reduced Stress:

  Delivery trading is less stressful since it does not need continuous market monitoring.

• Dividend Income:

  Investors may get dividends, which serve as an extra source of income.

• Fundamental Analysis:

  Decisions are frequently based on an in-depth look at a company's financial status and performance.

Disadvantages of Delivery Trading

• Market fluctuations:

  Investors must be prepared to deal with short-term volatility and stock price variations.

• Opportunity Cost:

  Capital is locked up in equities for lengthy periods of time, which could have been used for other investment options.

• Market Risk:

  Economic conditions, geopolitical events, and industry-specific challenges can all have an influence on the value of equities.

How do Intraday Trades Differ from Delivery Trades?

The main difference between intraday and delivery trading is the period of stock holdings. Intraday trading focuses on short-term returns over the course of a single trading day, whereas delivery trading entails holding stocks for longer periods of time, ranging from days to years.

• Time Horizon:

  Intraday trades are completed within a single trading day. Delivery trades are held over a lengthy period of time.

• Trading Objectives:

  Execute intraday trades to benefit quickly from daily market movements. Look for stocks with excellent fundamentals that will increase over time in delivery trades.

• Risk and Reward:

  Intraday trades are riskier owing to short time frames and the potential for rapid losses. Delivery Trades are considered safer, with an emphasis on stability over time.

• Analytical Approach:

  For intraday trading, use technical analysis to make quick decisions. Use fundamental research to evaluate a company's long-term prospects in delivery trading.

• Emotional Involvement:

  Intraday trading requires emotional management in a fast-paced atmosphere. Delivery trades provide a more casual approach with less regular monitoring.

How Your Approach Should Differ for Intraday and Delivery Trades

Here's how your strategy should change for intraday and delivery trades:

• Intraday Trading:

  • Time Sensitivity:

    1. Focus: On short-term price changes and act quickly.
    2. Strategy: For intraday charts, use technical analysis tools at minute or hourly intervals.

  • Risk Management:

    1. Emphasise: Set tight stop-loss orders to reduce risk.
    2. Avoid: Overleveraging, which can compound both gains and losses.

  • Market Monitoring:

    1. Requirement: Include continuous monitoring of market news and real-time data.
    2. Benefit: Quick reaction to abrupt price movements or market-related news.

  • Profit Booking:

    1. Frequency: Frequent trades to profit on minor price variations.
    2. Objective: Secure gains before the trading day ends.

• Delivery Trading:

  • Fundamental Analysis

    1. Focus: Evaluate the company's long-term health and prospects.
    2. Tools: Conduct fundamental analysis of financial statements, earnings reports, and industry trends.

  • Patience and Discipline:

    1. Mindset: To deal with short-term market volatility, be patient and disciplined.
    2. Avoid: Making hasty judgements based on daily or weekly price fluctuations.

  • Diversification:

    1. Strategy: Diversify your portfolio to spread risk across multiple industries or asset classes.
    2. Benefit: Reduces the impact of the bad performance of a single stock on the whole portfolio.

  • Dividend Consideration:

    1. Factor in: Evaluate stocks that provide dividends for additional income.
    2. Long-Term Gains: Dividends should be considered as part of the overall return on investment.

  • Market Timing:

    1. Importance: Less important, given the emphasis is on long-term growth.
    2. Benefit: Allows for less regular market monitoring, which reduces emotional involvement.

Conclusion

The decision between delivery and intraday and delivery trading is based on your personal preferences, risk tolerance, and investment objectives. Intraday trading is ideal for people who want to benefit quickly from short-term market moves, as it requires continual attention and a high degree of activity. Delivery trading, on the other hand, is perfect for investors seeking long-term success with a more relaxed strategy that focuses on company fundamentals. Understanding the various characteristics, benefits, and drawbacks of each strategy allows you to make informed choices and create a trading strategy that is consistent with your financial goals.