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Wednesday, April 01, 2020

What is delivery trading?

by Editor (editor) , February 12, 2020

Delivery is the final stage of a transaction in online share trading. This is when a deal is closed and the purchased asset (stock, currency, security, or any other instrument) is ‘delivered’ to the trader. In delivery trading, traders buy, take delivery, and own stocks of various companies. The names of these traders are listed with the relevant companies. Traders also receive any bonus or dividend pay-outs that the companies offer to their shareholders.

To understand this better, look at intraday trading as a kind of contrast. Intraday trading is speculative in nature, which is why intraday trading for beginners can be challenging. Here, traders buy and sell multiple times in a day without taking delivery of their purchases. Day traders pitch all their buys against all their sells and settle with the difference.

Here’s a quick look at the differences between the two:

Intraday Trading

Delivery Trading

Typically lasts from a few seconds to a few hours but is limited to a single business day. Traders have to square off their transactions by the end of the day.

Lasts for a few days to a few years.

Stocks are not delivered to traders.

Stocks are delivered to the demat accounts of traders.

No ownership of trades.

Traders own bought shares till they decide to sell them again.

Traders earn from daily price fluctuations of stocks.

Returns depend on long-term price movements of stocks.

Role of trading margins

Trading margins are a type of loan that brokers provide to their clients at low interest rates. Margins are, by and large, higher for intraday trading than for delivery trading. This is because settlements take place by the end of a single day in intraday trading. Also, clients can earn more when they invest more money. But the losses also get amplified.

Differences in process of intraday trading and delivery trading

  1. Trading volumes

Stocks traded on a regular basis by most people tend to have a higher volume (for instance, stocks of larger and well-known companies). Day traders buy such stocks as they tend to show a price difference during the course of the day. Stocks with lower-volume transactions might not have a good price change spectrum to benefit from. For delivery trading, volume is not a concern, as you can hold on to stocks till they reach the desired price.

  1. Price targets

For all types of trades, it is good practice to set a target price or stop loss price for selling off stocks. This is even more important for intraday trading as the window of operation is limited. With a short time to book profits, intraday traders should not miss any inputs relating to a price rise or fall. This way, day traders can cut losses and make money. Delivery trading, on the other hand, is a long-term process. Even if traders fail to sell when prices reach a high, they can wait for some more time for the prices to go up again. However, setting up pointers can help delivery traders to read the market better. They can adjust their exit prices based on overall market behaviour.

  1. Investment analysis

There are a number of technical indicators that help intraday traders to take decisions. For instance, parameters like moving averages and momentum oscillators try to predict stock price movements for a given day. In delivery trading, however, traders prefer stocks with long-term prospects. Before investing in a company, traders need to understand its finances, development scope, attitude, and internal operations. This type of research is called fundamental analysis, and it forms the core of the delivery trading system. You could open an account with an experienced broker like Kotak Securities that can guide your research and keep you updated.

Conclusion

If you are open to taking big risks and do not mind losing some money, intraday trading is up your street. However, you may wish to be cautious with your investments. In that case, go for delivery trading. Both these types come with their own pros and cons. So, make sure to do your research and have all the necessary information in hand before starting your trading journey.



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