Advantages of delivery trading

Online share trading has been gaining in popularity in India. The share market is a place where traders and investors have the potential to earn big. This is where the shares of companies listed on the stock exchanges are bought and sold.

In general, the activity of share trading in the secondary markets can be of two basic types: intraday trading and delivery trading.

Intraday trading

Intraday trading or day trading is when a trade is initiated and closed within the market hours of the same day. Shares are bought at the beginning of the day and sold before the market closes. Shares can even be sold during the first part of the day and bought back before the close of the market, if one foresees a price fall. Intraday trading is used by traders to generate quick profits. Day traders focus on small and quick price fluctuations in shares to generate small profits.

Delivery trading

Delivery trading is quite the opposite of intraday trading. It is meant for people who are interested in making a smart investment. There is no need for you to sell off your shares in one day—though you could do that too. In effect, delivery traders can hold on to the shares for as long as they want. Delivery traders focus on a gradual but big price rise. They often have a long-term view to generate significant profits.

Most people engaging in share trading today prefer delivery trading. They have to buy the shares, which are deposited in their demat accounts. Now they can wait for the share price to reach the expected level before selling them. Shares can be held for any length of time in this form of trading.

Delivery trading advantages

Having compared delivery trading with intraday trading, let’s look at the main advantages of delivery trading.

1. Not time-bound

The biggest advantage of delivery trading is that you have all the time in the world to wait before you sell. You are never in a hurry to sell a stock—not unless the price is falling below your expectations. It is then that you can sell off your shares. But otherwise, you can hold on to the shares for as long as the prices keep rising, unlike in day trading.

2. Dividends and bonus shares

When you make long-term investments and hold on to the shares, the profit you earn is not your only gain. Long-term investment in stable organisations with good governance brings other gains as well. Such organisations may reward their stakeholders with dividends and issues of bonus shares. These are benefits that you receive from good companies from time to time. In such cases, investment in a good number of shares can fetch you significant earnings.

Delivery trading disadvantages

While delivery trading is mostly free from the risks of day trading, it has some limitations.

1. Brokerage rate

One of the disadvantages of delivery trading is that the rate of brokerage is higher than for intraday trading.

2. Full price payment

In delivery trading, you have to pay the full price of the stock to hold the stock. In contrast, day traders make only a partial payment because they don’t take delivery of the shares. So, in case of delivery trading, you have to block more capital to make a trade.

Summing up

If you are relatively new to online share trading, it may be a good idea to the test the waters with delivery trades. Choose one or two good-quality stocks to begin with, as monitoring them would be simpler. Gradually, you can build up your portfolio. It may also help to open an account with an experienced broker like Kotak Securities. Their research findings, stock tips, and various trading tools could help you to develop a dynamic trading strategy over time.