For many beginners in stock market differentiating between intraday and delivery trading can become cumbersome. This guide will certainly going to help you as i have tried to explain every important aspects of intraday and delivery trading step by step. So, let us understand them one by one.
What Is Intraday Trading?
Intraday trading often called as day trading trading in stock market refers to buying and selling of shares of any stock within market hours. Intraday trading is not limited to equity (stocks), you can buy and sell same day in other market segments like derivative (futures and options), commodities (gold, silver, crude-oil) or in currency segment as well.
In case if you forgets to sell the position or buy (in case of short sell), the trades are executed (squared-off) automatically by your stock broker before the market closing.
In simple words, intraday trading helps you to place your trades within a defined time limit, you can buy and sell stocks for a minute, keep it for hours but make sure at the end of the market hours you have close your position.
In case of intraday trading, the trades are closed out on the same day so the profits or losses, if any, are either credited or debited to the trading account instantly.
Equity and equity derivatives timings in India is morning 9 a.m. till 3:30 p.m. Avoid the equity derivative as of now, it is much different and requires more learning, but you will gather with time, as a beginner just focus on to Equity only for now.
What Is Margin Intraday Square Off (MIS)?
MIS as a product code is used for trading Intraday Equity, Intraday F&O, and Intraday Commodity Trading. You enjoy additional margin using the MIS product code.
All the positions under the MIS product code will get automatically squared off, if you do not do it from your end before the market gets closed.
Depending upon your broker the timing for auto square-off may vary 3:15 to 3:25 usually. Some brokers do charge for auto square-off trades so check with them while opening your account.
Below are the points you need to keep in mind while doing intraday trading:
- You can buy or sell shares even for a minute or hour or before the market gets closed.
- Suppose PNB(Punjab national bank) is trading at Rs.40, you bought 1000 shares now you can sell this shares just after you bought it or can keep it for 1 or 2 hours or before the market gets closed.
- You have to square off (to close your opened position) before the market gets closed same day.
- Brokers usually have a dedicated team named RMS(risk management system), they will auto square off your all opened position, if you do not do it from your end, at whatever market price that share is trading.
- Brokers usually do auto square-off before the exact market closing time mostly it happens from 3:15 till 3:25.
- So whenever you place order as intraday keep in mind to select MIS(Margin intraday square-off). This is the type of order you select while trading intraday.
- You can convert your intraday position to delivery also known as CNC(Cash and carry), however you should have complete margin amount in your trading account to do so before market gets closed.
Why Do Intraday Trading?
One of the major benefit of intraday trading is margin. So, let us first understand, how margin works in intraday trading?
Margin in stock market refers to buying/selling of securities(shares) by borrowing money from your broker. This is very much similar to taking loan for short period of time. Let us understand this with a simple example:
Suppose you want to buy shares of tata motors currently trading at Rs.80. You have 1000 rupees in your trading account, how many shares you can buy with this money?
80*12=960, so approx. you can buy 12 shares, although with this low quantity, the profit you will earn if the shares prices move 1 rupee up and down is only 12. This does not look attractive at all. That is why the brokers would provide you margin to trade with larger quantity.
So they will give you 5, 10 to 20 times margin(may be more), now multiply your initial investment 1000*10 or 20, you will have much more money to buy the stock and with more quantity. Now the profit per share will be more as the quantity got increased.
Sounds attractive now, as your 1000 becomes 20,000 and with that you can buy at least 240 shares in case of tata motors, and per 1 rupees movement will give you 240 bucks.
Take it as an extra power given to you, now its up to you to decide whether you want to use it or not. Hope you have understood the basics of how margin works in share market.
Second important factor is Short selling:
If you believe that the price of a stock is likely to fall during the day, you may sell the shares without even buying at the first place. Later, during the day, depending on the profit, you can buy the stock at a lower price to book profit.
What this means is suppose there is a stock named ABC trading at Rs.100, you believe (after research) this stock is going to fall instead of going up, in that case you can put a sell order at Rs.100, and if the stock fall to let say Rs.97 within market hours, than you can buy it back at lower price making a benefit of Rs.3 per share.
So if the quantity is let say 500 than your profit (excluding brokerage and taxes) would be 500*3= ₹1500.
Why No To Do Intraday Trading?
You have to keep in mind the time frame, as it is limited within the market hours. Timing the market is not a easy task, you have to keep yourself engaged throughout the day, using various technical charts and indicators. Which can be overwhelming for beginners.
Thus, if the stock moves in the direction opposite to what you expected, you can’t hold the stock for the next day as the position is cut off automatically. Hence, you will have to book losses come what may.
Let us now move to understand about the delivery trading and its advantages.
What Is Delivery Trading?
Delivery trading is just opposite of intraday trading, In delivery trades as an investor, you take shares that you buy to your demat account, instead of selling it same day.
Moreover in such transactions, you can hold the shares for a short, medium or longer-term depending up on you.
The duration can range from two days, months, years or even two decades or more.
If you have placed order as CNC, cash and carry order type or delivery order type, than you first require full margin to place the order . So if you are buying let say HDFC bank shares, trading at 800 per share.
You have to have the full Rs.800(per share) to place the order. Having said that there are few stock brokers who do provide the margin facility in delivery trades as well one of them is 5Paisa.
Once you have placed the order, you can still sell the shares before the markets gets closed, however this time RMS will recognize your order type as delivery and will not square-off your open position. This shares will get deliver to your Demat account.
You can keep those shares as long as you want or sell it whenever you feel so its totally up to you. Read here if you don’t know what is trading and demat account?
Why Do delivery trading?
One of the major advantage of delivery trading is its less risk compare to intraday trading. So, if you believe in the business and fundamentals of a company and think the company will do well in future, you can get the benefit by remaining invested in that stock.
It is less time consuming than intraday trading, once bought you can sell the shares whenever you want or keep them for lifetime. Whereas in intraday you have to not only time the market but have to continuous look for different parameters throughout the market hours.
Another major benefit is, you get paid dividend, bonus, rights issue, etc. if you keep yourself invested.
Why Not To Do Delivery Trading?
You need to buy stocks by paying the full amount of each share. Thus, your funds are stuck until you decide to sell your holding.
Another thing is if you did not study the companies fundamentals or have invested in any unknown company this may lead to disaster. For example (Gitanjali Gems) this ruined the wealth of many investors.
Intraday and delivery trading both have some advantages and draw backs , below image describes both in nutshell.
Is Delivery Trading Profitable?
A Big Yes, Let me explain you how?
Suppose, you started investing at a young age of 25 years till you reach 50, or if your family had invested till you have reached the age of 25 year, only ₹10,000 (use your country currency) per year in any stocks or index funds with normal 10% returns, keep in mind, it’s very normal in market, just to inform you Nifty next 50(index) alone have given 17.2% return on average every year since its inception and there are many stocks who have given more than 20, 30% return every year.
This would have given you ₹1,08,347, remember it is just one time investment of 10,000 not every year and the percentage of return is nominal.
This is how it looks on chart:
Nifty50 & Next 50 Index CAGR(Compounded Annual Growth Rate) Since inception:
I thought you might not believe what i said above so let me present the facts to you, check the image below:
As you can see the returns generated by Nifty50 Index and Nifty next 50 above, people choose index because of less risks involved, that’s why the return is moderate, however if you invest in good stock(fundamentally), the return would be much bigger.
As an example:
MRF shares have generated multi fold returns for the investors over the years. If an investor had invested Rs 1 lakh in MRF shares 25 years ago, the corpus would have been worth Rs 74.02 crore in April 30, 2018 when the stock was its peak.
Even 1 share costed Just Rs.11 in the year 1993 which at the peak(2018) was around Rs.81,423.
According to BSE data, the MRF’s shares grew sharply by 2,210 percent between May 11, 2009 to May 9, 2019. The stock growth consolidated to 154.83 per cent in the last five years. Check the lifetime MRF chart below:
So, instead of you buying a fancy item, which is nothing but a liability, could create a asset from the same money. However, its up to you to decide, the early you do, more beneficial it is .
That is why delivery trading is a kind of creating an asset for you and your future. Whether you are doing it for short mid or long term gain.
Check this Compound Interest calculator to know how much you can make if you invest a particular amount for a specified time period.
Which Is Best, Intraday or Delivery Trading?
Every individual who comes to the stock market comes with the desire and hope to earn. The stock market is one of the most money making field, as it provides better returns than other.
However, as a word of caution not to disappoint you but to make you aware, there is nothing called as “free lunch in this world”.
For a beginner, in my opinion who want to start his career in trading or investing, should start will as less money as possible. At the same time you need to keep learning new strategies, different technical tools to be better than others.
With the time, you will learn different things and a period will come where you can bet on big money, but till than save your capital and never invest or trade with all your money in one go.
So, if you have time, that you can invest , you can start with intraday trading on the other hand if you are quite busy start doing little investment (delivery) in few blue chip companies (who are well known).
Most important is to start, because at the end of the day, till you have no experience of how how stock market works in practicality, neither trading or investing works.
You should know how to place orders, how to put charts and a good habit of reading about the market. This may lead you in long term with major benefits.
Can Intraday Trading Be Full Time Job?
A big Yes and No, it depends. Reason being for a newbie you may feel after placing few trades and looking at profits that you can do this everyday. But the reality is different, any day a big loss can take over your all profits. Trust me it happens with everyone.
Don’t get me wrong, yes you can make it a full time job, but just like to complete your education whether from 1 to 12 or even a diploma or degree takes time, similarly to be best among others will take some time.
This totally depends upon your capabilities and time you are giving in learning more about the markets. So, i would advise you to start if possible as a side hustle rather than full time in starting, with more maturity and learning you can continue to make it a full time.
Can Intraday Trading Make You Rich?
Earning in share market is not like quick rich scheme or overnight you will become millionaire. Just like any other profession which requires little dedication and hard work with smartness, stock market need little time.
Yes, doing intraday trades can make you rich depending upon your learning and knowledge regarding stock market. You should keep in mind that the market is always right and it’s your capability, focus and hard work that will help you to generate a daily income from the stock market.
Correct strategies and discipline will be the perfect ingredients helping you to earn daily income.
Here is the list of things as a beginner you should know, if you are thinking for doing intraday trading.
A brief understanding of
Best Technical tools and indicators
How to read charts for technical analysis?
This will be a starter guide which is surely going to help you in a long run. Intraday trading is nothing but a strategy based art. Some people may consider it as a game of gambling but for other it’s a huge source of income.
So start your journey by opening a perfect trading and demat account here with Best Broker In India.
You can also check my reviews on best brokers in India here:
In case you want to know how much you need to save every month to reach your financial goals check out Moneycontain Monthly SIP Calculator with inflation here.
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Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand about how Intraday And Delivery Trading works, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.
Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.
