Difference between intraday and delivery trading

When you’re buying and selling of stocks within the same trading day, you’re indulging in Intraday Trading. In this course of action, stocks are purchased with the aim of earning profits and not with any objective of investment. This is done by harnessing the movement of stock indices, which means that the varied prices of the stocks are harnessed in order to earn profits from trading of stocks.

To participate in Intraday Trading, an online trading account must be set up with specific orders which are explicit to Intraday Trading. These orders are squared off before the trading day ends.

• Only a little capital investment is required by the trader as payments can be made in small margins.
• The investor can leverage capital to earn maximum profits.
• It eliminates the overnight risks of the stocks.

• There are no long-term capital investments.
• The use of leverage can result in more losses.
• It requires constant attention of the trader as trades end by the end of the day.

Delivery trading is one of the most common trading methods in the stock market. Unlike Intraday Trading, delivery trading involves a more pronounced intention of investment than just trading opportunities. This is because the investors have it in mind to hold on to their stockholdings for a longer period of time.

In this process, there are no time constraints in the selling of stocks. As long as the stocks are delivered to the associated demat accounts, it is considered as a Delivery Trade. You cannot perform Delivery Trades without a demat account - since a demat account is where your stocks will be stored.

• There is no time limit to sell stocks.
• It provides easy bonus earnings as to dividend, bonus issues, rights issues etc, with the stock owner earning all the bonuses which the company doles out.
• It helps in significantly increasing the profits of the investor as higher returns are provided to the owner through the company’s dividends and bonuses.
• There is no risk of short selling. Short selling is the process of borrowing shares to sell in the market, and then buying it back again before the end of the trading day.

• Complete upfront payments: No trading can take place if the investor cannot pay the entire amount of transaction up front. Thus, an investor can end up losing a good opportunity due to lack of funds.

It is easy to conclude that Intraday Trading is usually completed within a day. This typically means that all the shares purchased in the day must be sold by the end of the day, before the closing of the markets. If these shares are not sold, they are automatically squared off at the closing time.

However, on the other hand, in delivery based trading, shares bought can be maintained for a longer duration for higher profit returns.While Intraday Trading gives the opportunity for low capital accounts and margin payments, delivery trading requires complete amounts for its transactions.

As an intraday trader, if one can judge and forecast the value of shares at short and small intervals, then Intraday Trading is a good idea. Nevertheless, there are many technical tools which assist in predicting short term price movements.However, if one thinks long term investing is better suited for them, and they are able to pick shares based on company’s intrinsic value and relatable assessments (such as the company’s fundamental indicators - like price-to-earnings ratio, book value and the like), delivery based trading can be considered as a better option.

How to do Intraday Trading

In online trading platforms, when an intraday transaction is made, it has to be explicitly specified that it is an intraday transaction while placing the order. However, while buying, there is always an option to change it to ‘Delivery Trades’ later, before the market closes.In most of the trading platforms, the stocks bought under Intraday Trading are automatically squared off if they are not transacted as per rules before the day ends.

There are plenty of things you should keep in mind before you begin Intraday Trading. In addition, we also have some items that you ought to have in good supply before you begin:

• Good amount of knowledge of basics : Knowledge is power. It is extremely important to keep oneself informed not only about the basic trading processes, but also the newest stock market news and events that could affect stocks and shares.
• Surplus funds : It is better to estimate how much capital goes into trading online, while keeping in mind the expenses of one’s daily necessities. Setting aside a surplus amount of funds to trade (which one is also ready to lose) is always the right step.
• Starting small : In the beginning, it is definitely advisable to start with a small number of stocks to trade with. This makes finding opportunities easier.
• Being realistic about profits : Successful traders always move fast without having to think fast. This is because they tend to develop a trading plan in advance along with realistic approaches about profits.
• Logical decisions : As a trader, greed does tend to makes its way through, but it is necessary to stay calm and make logical decisions instead of emotional ones.

An intraday trader actively performs buy and sell transactions, sometimes even multiple times during the day, but ensures not to carry any of the open positions to the next day.

• Conducting a complete self assessment : For successful Intraday Trading, one requires a mixture of basic trading and financial knowledge and traits as well as dedication to a trading lifestyle. Unless one is ready to devote enough time, is prepared to self-learn and is mentally set to take risks and accept losses, Intraday Trading is not the best option. Hence, the first step is to conduct a self assessment on all the points mentioned above to start of with Intraday Trading.
• Putting together adequate capital : It is impossible to generate profits consistently in online trading. Discontinuous and comprehensive losses are part of its game. For instance, a day trader can suffer seven loss making trades in a row and can only recover with a profit on the ones after.
• Starting small : In the beginning, it is definitely advisable to start with a small number of stocks to trade with. This makes finding opportunities easier.
• Understanding the working of markets : It is important for an intraday trader to build a solid foundation of information about how the markets function. This should include simple details like exchange trading hours, impact of news events, margin requirements, and so on.
• Selection of an appropriate trading plan/strategy/tactic : The trading world has become extremely dynamic. Its strategies can constantly make money for long periods and even then fail at any point of time. It is advisable for beginners to enter the trading world with at least two established trade strategies, in order to act as backups of each other in case of failure. Once the trader’s experience increases, it is then recommended to move on to larger and more complex strategies.
• Brokerage Charges : Due to the frequent involvement of transactions, Intraday Trading can result in high brokerage costs. Hence it is advised to do a thorough research before the selection of a brokerage plan for trading. If a trader intends on completing about one or two trades per day, then a per trade basis brokerage plan would be suitable. However, if the trader’s daily trading volume is higher, it’s appropriate to go unlimited brokerage plans that help in reducing the effective cost. And finally, aspiring traders should make sure that they remain cautious of websites and courses that promise full-proof day trading success or endless profits.

How does a Day Trader Work?

A typical day trader who is serious about her work and earns her living through day trading has some qualities which makes her an expert in the field.

• The most important one is knowledge and expertise. For a person to qualify as a day trader, he must have solid knowledge and experience of the market. Day traders know market fundamentals, but they constantly keep on researching on dynamic technicals because the stock market is an unstable place.
• One cannot make money without sufficient capital. A good amount of capital is absolutely necessary, otherwise the return will be small and of no use. Day traders use risk capital for day trading which they can afford to lose. They often borrow money too (called leverage) because a huge amount of capital is not always readily available.
• A good blueprint is important keeping in mind the risk involved. To have an edge over other day traders, a strategy proves to be worthwhile. Day traders use different strategies like, arbitrage, swing trading, etc.
• Proper discipline is always the key to success, be it any field. A day trader will often end up losing a huge amount of capital invested if discipline is missing.
• A day trader uses proper technology to perform all tasks since everything happens electronically.

Day traders use some strategies to make profits. A day trader must be flexible in using strategies, because as we already mentioned, the stock market is an unstable place. Here are some common strategies used by day traders:

• Scalping : Scalping used to be called spread-trading, and is a technique based on real time technical analysis. Purchasing and selling is performed by holding a position for a very short duration of time for small profits.
• Range Trading : ‘Trading in a range’ stocks are analysed. They are stocks which on reaching high, fall low. Therefore, the day trader buys them at low price and sells at high.
• Trend Following : Trend following can be considered one of the most basic strategies for day traders. It assumes that the stocks that are rising will keep on rising and vice versa. Hence, the trader buys the rising stocks and sells the falling ones.

There are basically two types of day traders - those who work for an institution and those who work alone. Most of the people who perform day trading for a living are those working for some institution.

Here are some of the reasons why most traders work with institutions:

• A large amount of capital needs to be invested which might not always be available at an individual trader’s disposal.
• Expensive analytical software might be required that can be provided at an institute.

Even though most day traders traditionally worked with institutions, with the advent of internet and light-weight trading platforms that provide real time information, individual traders can also become day traders.