Newcomers often ask me “Sir, what is Intraday Trading?” Some also ask me to describe the term delivery trading or positional trading or swing trading. So I thought to write an article on intraday trading vs delivery trading. In this article, we will also discuss, which style of trading will be suitable for you – day trading or positional trading?
What is intraday trading?
Suppose Ravi trades in the share market or stock market. He buys and sells stocks or shares on the same day. Everyday the price of a stock, say Reliance Industries or say XYZ Company fluctuates. Intraday trading or day trading is utilizing this rise or drop of the share due to this fluctuation and buying of selling the same stock within the day.
What is margin trading?
Day trading can offer huge returns percentage wise. The intraday trader, Ravi also gets the benefit of margin funding from his broker, that means if he has Rs. 10000 he can trade few multiples of it. Brokers give margins according to their capacity and rules. In general, in NSE exchange, a client gets 3 times to 10 times from the broker. Some brokers like Zerodha even gives up to 20 times margin to the clients if they trade intraday using a bracket order or cover order. That means if Ravi has Rs. 10,000 in his account, he can trade up to Rs. 10,000 x 20 times = Rs. 2,00,000 in the day trading. This is considered as a major advantage of intraday trading vs delivery trading.
The day trader can earn huge returns by using the margin offered by the broker. Suppose Ravi has Rs. 10,000 in his account and he does not take the margin. He makes a profit of 5% in the day, it means his profit is Rs. 500. But if he takes 10 times margin, he can utilize Rs. 10,000 x 10 times = Rs. 1,00,000 for trading. Now if he makes a profit of 5%, i.e, his profit becomes Rs. 5,000. This Rs. 5,000 profit is achieved from a capital of Rs. 10,000 only. So the effective profit becomes 50%. This is the power of day trading. Watch the image below to understand margin trading.
Risk in day trading:
We understood that there is huge profit potential in day trading. But there can be a risk of losses too because if a trader can take a margin and earns 5% profits, he can lose 2% too. So that loss will affect his capital as the loss can erode his capital very fast. So what does Ravi do to save himself from loss? He uses strict stop loss value that can save him from a major loss.
What is delivery trading?
Delivery trading is much more safe than intraday trading. Say, Raju buys shares today and he sells them after 1 day or 1 week or 1 month or 1 year or 10 years then this type of trading is called delivery trading or positional trading or swing trading. Shares you buy in delivery mode can be sold anytime before the market close. Brokers generally charge higher brokerage in delivery trading. Also, tax rates are higher in positional trading But thanks to discount brokers, Zerodha now charges no brokerage on delivery trading. You may open an account in Zerodha if you don’t have one.
Delivery trading is also known as positional trading or swing trading. The name swing trading is used because it utilizes the small market swings to create entry and exit positions and fetch profits. Here, you create a position today and can close it next day or any trading day after this in the market hours.
Intraday trading vs delivery trading:
- Intraday trader needs to be quick, he needs to execute orders fast and book profits fast.
- In delivery, brokers generally charge higher brokerage than intraday trading.
- Intraday trading offers high risk and high reward.
- Delivery trading can create wealth over long run.
- Intraday traders needs to watch market closely through out the day, but delivery trader can watch it at night or in part time.
- Intraday orders must be in MIS form but delivery orders should be in CNC or NRML form.
Intraday trading vs delivery trading – Which one is for you?
- Full-time traders can trade intraday.
- Office goers or people not in front of screen can opt for delivery trading.
- If you can not watch the market in trading hours you can choose delivery or swing trading instead.
- Nowadays there are different mobile apps so that you can follow the market even while moving. Check Zerodha Kite mobile app, if you cant watch market while you are moving.
Categories: Stock Market Basics