Intraday and delivery trading are the terms used in the context of the stock market, while many people consider intraday trading as bad and compare it with gambling still many people do intraday trading all over the world. Today we will not discuss what is good or what is bad rather we will discuss some of the basic differences between intraday trading and delivery trading –
Intraday VS Delivery Trading
Meaning
Intraday trading refers to that trading in which the trader buys the stock in the morning and sell the same stock during market hours, if the selling price is higher than the buying price than the trader will earn a profit while if the selling price is lower than the buying price than trader will be in loss. Whereas delivery trading refers to that trading in which an individual buys the stock with the intention of keeping that stock for some period of time and selling the stock whenever the selling price is higher than the buying price.
Example
An example of intraday trading is suppose a trader buys 1000 Microsoft stock trading at $100 in the morning now due to some good news the price of Microsoft rises to $105 then the trader can sell the stock and make $5000 profit in a day. An example of delivery trading is suppose an investor buys 1000 Microsoft stock at $100 now the stock price of Microsoft falls to $90 during the day and further falls to $80 next day than an investor does not need to do anything apart from keeping the stock, now suppose after 1 year the stock price of Microsoft is $150 than an investor will make $50000 profit in a year.
Time Period
Intraday trading is done for a very short period of time that is for 7 or 8 hours and the trader has to compulsorily close his or her position during the day whether it’s in profit or in a loss but as far as delivery trading is concerned it can be for any period it can be for 1 day or for 1 year or for 10 years, hence one can hold the shares as long as he or she wants and nobody can force him or her to sell the shares.
Capital Requirement
In the case of intraday trading capital requirement is not much because the majority of brokerages all over the world give margin limit using which trader can trade intraday. Hence for example, if you have $10000 and the broker is giving 20 times limit and if Microsoft stock is trading at $100 than you can buy 2000 shares in intraday trading, but as far as delivery trading is concerned you need to have the full amount in your brokerage account in order to buy stocks. Hence in the above example, an individual will need to have $200000 in his or her account to buy 2000 shares of Microsoft.
Risk
In the case of intraday trading, there is more risk because any bad news can result in a big fall in the markets leading to a loss for a trader as the trader has to square off his or her position intraday but as far as delivery trading is concerned it is less risky as panic in markets is temporary and if you have fundamentally good stocks than they recover quickly hence your incur only book loss and not an actual loss in case of delivery trading during the panic in stock markets. The best example of this occurrence was during the panic in February and March month of 2020 where stock markets all over the world fell close to 50 percent in a very short period of time but eventually, they all recovered within 6 months, hence anyone who was doing intraday trading would have been gone bankrupt when markets were falling but people who were doing delivery trading made handsome profits due to fall in stock markets.
As one can see from the above that both intraday trading and delivery trading are poles apart from each other and that is the reason why any person thinking of doing intraday trading or delivery trading should first look at the difference between the two and then only should start trading.