In the stock market, every individual dreams of cracking the mantra of Rakesh Jhunjhunwala but only a few actually manage to do so.
There is no rocket science behind understanding the fundamentals of a company, what matters is persistence. Investors such as Jhunjhunwala or Warren Buffet are known for their stickiness.
These investors have not sold even a single share in some of the companies of their portfolio for decades. This kind of approach is not everyone’s cup of tea as it requires a high degree of patience and belief in oneself.
But does it mean that if you don’t hold the shares for such long-term, you won’t be able to make money? Not really.
For individuals who are not interested in long term investing and are not looking for delivery trading, there is an alternative to intra-day trading.
This is the place where millions of investors try to make a fortune every day by tracking the market very closely minute by minute.
Before we talk of the differences, pros, and cons, lets quickly touch upon the background.
An individual can trade in two different ways in share market – delivery or intra-day.
What is intraday trading?
In this mode of trading, an individual buys and sells shares on the same day during the market houses. In case an individual forgets to sell the position or buy (in case of short sell), the trades are executed automatically during the closing hours.
In this article
What is delivery trading?
In delivery transactions, an investor is not required to buy and sell shares within the same day. In such transactions, the individual can hold the shares for a longer-term depending on his/her willingness. The duration can range from two days to even two decades or more.
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Advantages and disadvantages
Intraday and delivery have both pros and cons of their own. Let us see the advantages of intraday first –
1.Advantages of intraday
Allowed to buy shares on margin
The market makes allow an individual to pay only a part of the full price; thus, a trader can technically gain more by investing less.
Allowed to short sell
If an individual believes that the price of a stock is likely to fall during the day, he may sell the shares without even buying at the first place or holding from previous transactions. Later, during the day, depending on the profit, the individual can buy the stock at a lower price to book profit.
The brokerage is lower for intraday when compared to delivery.
Let us now talk about the disadvantages
2.Disadvantages of intraday
Remember the market can’t be timed and you can’t predict things irrespective of how robust tools you use. Thus, if the stock moves in the direction opposite to what you anticipated, you can’t hold the stock for the next day as the position is cut off automatically. Thus, you will have to book losses come what may.
No dividend or other benefits such as bonus, rights
In intraday trading, you do not hold the stock as on the record date of the dividend, bonus, rights issue, etc.
Required to be monitored closely
An individual is required to track minute by minute the market.
3. Advantages of delivery trading
Holding stocks for long-term
If you believe in the business and fundamentals of a company and believe the company to perform well, you can get the benefit by remaining invested in the stock. Also, if your stock didn’t perform well in the short-term due to any reason, you don’t need to book loss if you believe that the stock can do well in the long-run.
Safer than intraday
The risk in delivery is comparatively lower than intraday, where the profit and loss are booked the same day.
4.Disadvantages of delivery
You need to buy stocks by paying the full amount of each share. Thus, your funds are until you decide to sell your holding.
Which one should you go for?
Intraday trading lures an individual, but it ain’t everyone’s cup of tea. As highlighted above, an individual is required to monitor his/her position minute by minute.
Thus, an investor who is not very comfortable with such an approach should ideally stay from the intraday approach. On the other hand, a trader who has a habit of quickly making money, by taking a position for few minutes to few hours, should ideally not get into delivery mode very often because the style needs patience which may not be there in traders.
Also, an individual going for intraday rely more on technicals, involving charts and algorithms, to take positions. On the other hand, an investor putting money via delivery style relies on fundamentals more than technicals.
Fundamentals play a smaller role in intraday trading and thus may not suit an individual who is pro in technicals.
Disclaimer: The views expressed in this post are that of the author and not those of Groww