Sharekhan Blog

Intraday vs Delivery Trading: Which One is Right for you?

  • Apr 30, 2024

Trading platforms in India offer retail investors easy access to equity markets; an oft-asked question is the suitability between utilising delivery-based investing versus higher velocity intraday trading.

Delivery focuses on longer holding periods, while intraday involves squaring off positions within the same trading session. Aligning choice to personalised goals and temperament remains key.

In this article, we will discuss intraday trading and delivery trading, which might suit you.

Understanding Delivery Trading Dynamics

Delivery-based investing refers to purchasing shares to hold them for extended periods in one's Demat account to benefit from ownership as the company grows profitably across business cycles. Investors become fraction owners entitled to dividends and rights issues.

Instead of focusing on volatile, short-term price movements, a delivery investing approach prioritises fundamental attributes when making investment decisions, such as business quality, market position, management capabilities, competitive advantages, favourable industry trends, cash flow sustainability, and long-term growth potential. Wealth creation through this lens relies more on a business's underlying performance over many years rather than daily fluctuations in share prices.

Benefits of Delivery Trading

Delivery-based equity investing has several significant benefits. These include:

1. Aligns with long-term wealth creation needs like retirement planning or children's education since continuous ownership smoothens temporary volatility risk

2. Carries relatively lower risk compared to delivery intraday trading as exposure duration provides time for recovery from temporary downswings

3. Enables benefiting from dividends declared by profitable corporations as fractional owners

4. It Provides an opportunity to apply protective stop losses without frequent exit and re-entry transaction costs

5. Allows investing smaller, regular amounts via systematic investment plans into quality names regardless of market levels

Suitability of Delivery Trading Style

Delivery trading is a good fit for investors looking for long-term capital growth and willing to stay invested even during market fluctuations. This approach is based on buying and holding investments for a multi-year horizon.

With enough risk buffers in place, temporary dips in the market can be normalised over time as long as the underlying fundamentals of the investments remain intact.

Some key suitability factors include:

1. Temperament - Patience with a 5+ year outlook preferred

2. Risk Appetite - Moderate tolerance for periodic mark-to-market volatility

3. Objectives - Long-term wealth accumulation goals

4. Involvement - Occasional tracking and course corrections

5. Capital - Both lump sum or staggered investments work

Understanding Intraday Trading Approach

Intraday trading involves capitalising on minor price movements during the day by entering and exiting positions faster, sometimes within minutes or hours. Traders typically utilise technical indicators and chart patterns to act upon signals.

Instead of business fundamentals, short-term supply-demand mismatches, trading volumes, depth of market orders, and momentum indicators determine profits. Rate-sensitive sectors also respond sharply to news triggers intraday.

With adequate risk management protocols, traders seek to capture such recursing volatility spikes. However, leverage and speculative mindsets also spike risks.

Benefits of Intraday Trading 

Intraday trading presents several advantages, including:

1. Opportunity to capitalise on near-term mispricing anomalies and daily volatility points

2. With margins and leverage, investors can deploy relatively smaller capital to trade more shares

3. Lower duration of market exposure allows capturing day-specific trends and events

4. Technical focus and disciplined stop losses aid in protecting downside risk

5. Profit potential unconstrained by company fundamentals or industry limitations

Analysing Suitability Factors

Intraday trading is more suitable for individuals with temperaments that align with the fast-paced and dynamic nature of this type of trading: 

1. Risk Appetite - Higher tolerance for leveraged positions across specific names

2. Goals - Meeting short-term cash flow needs 

3. Temperament - Thrive under pressure with quick reaction time  

4. Involvement - Continuous monitoring of price actions

5. Liquidity - Maintaining adequate margins to service exposure 

Position sizing and risk management remain indispensable during intraday trading.

Key Differences Worth Noting

While aspects such as skill, research, and risk controls apply equally to both trading styles, there are differences between intraday and delivery, which include:

1. Holding Period - Intraday trading is buying and selling securities within a single day, while long-term delivery means holding onto securities for months or years.

2. Risk and Leverage Usage - Intraday vs. Delivery trading offers a wider range of margins and higher leverage options than other types of trading.

3. Number of Trades - Intraday and Delivery traders tend to have higher trading volumes as they operate within shorter timeframes than other traders.

4. Fees and Charges - Intraday and Delivery margins involve higher transaction costs due to wider bid-ask spreads and impact costs.

5. Analysis Tools - Intraday trading relies more on technical indicators than delivery trading, which relies on fundamentals.Click Here to about NRI Pattern Finder Tool

6. Volatility Tolerance - Intraday trading is more tolerant of temporary market fluctuations than long-term investments.

Conclusion

Trading styles offer avenues for retail investors to generate wealth from equity markets in line with prudent practices. Aligning the approach with desired objectives, liquidity needs, involvement levels, risk appetite, and available market time determines suitability between the two modes.

Blended investors may also allocate stable core portfolio holdings for long-term ownership gains while utilising a satellite intraday trading account for tactical gains across opportunities. Finding the optimal balance depends ultimately upon each investor's personalised profile.


Team Sharekhan
by Team Sharekhan

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