Difference Between Intraday and Delivery Trading

Buying and selling shares on the same day is intraday trading. When you don’t sell your shares on the same day, your trade becomes a delivery trade. So, in an intraday trade, both the legs of a transaction, i.e., buying and selling, are executed on the same day. Hence, the net holding position will be zero. In a delivery trade, only one side of the transaction, i.e., buying or selling, is executed in one day. Strategies differ for intraday and delivery-based trading. However, it is not rocket science. When you learn about these one at a time and compare them, they are fairly easy to understand.

What Are Intraday Trades?

Intraday trades, also known as day trading, involve buying and selling a stock within a trading session, i.e., on the same day. If you do not square off your position by the end of the day, your stock can be sold automatically at the day’s closing price under certain brokerage plans. Most traders initiate an intraday trade by setting a target price for a stock and buying it if it is trading below the target price. They then sell the stock if it reaches the target price or if they feel the stock won’t reach the target before the market closes for the day. The motive behind intraday trading is to make quick profits within a day.

What Does Intraday Trading Look Like?

Let’s take a simple example – The share of XYZ Ltd was trading at ₹500/share at 10:15 AM. By 02:15 PM, the stock price had risen to ₹550/share. Mr. Raj is an intraday trader. He bought 1,000 shares of XYZ Ltd. for ₹500 in the morning. When the stock price went up to ₹550, he sold his shares and squared off his position. By doing this, he made a profit of ₹50 per share, i.e. ₹50,000 profit within a few hours. That’s intraday trading at play. Since day traders constantly buy and sell shares, they tend to incur huge brokerage charges. Generally, to execute an intraday trade, the intraday trader has to pay a brokerage, which includes Securities Transaction Tax (STT), SEBI Regulatory Fee, Transaction Charges, Stamp Duty, and GST on brokerage. And these charges might eat up a certain percentage of your intraday profit.

What Are Delivery Trades?

In delivery trades, the stocks you buy are added to your demat account. They remain in your possession until you decide to sell them, which can be in days, weeks, months or years. You enjoy complete ownership of your stocks.

Intraday vs Delivery Trades: Pros and Cons of Each

Both strategies have distinct advantages and drawbacks, making the choice dependent on an individual’s risk tolerance, financial goals, time availability, and expertise in trading or investing. Understanding the differences between delivery and intraday trading will give you valuable insights into the unique pros and cons of each.

What is the Importance of Trading Margins?

A key difference between intraday and delivery-based trading lies in trading margins. You can enhance your intraday trading earnings by using margins. These are trading loans that brokers provide their clients at a small interest. A 10x margin means that if you invest ₹10,000 in an intraday trade, you can borrow ₹90,000 from your broker and invest a sum of ₹1,00,000. Meaning you pay 10% of the amount as a margin.

Margins also help increase the potential return on investment (ROI). For example, if your stock goes up by 5% in the earlier example, you will make a profit of ₹5,000 before paying the interest. This means you earn a return of 50% (₹10,000/ ₹5,000) on your actual capital. But remember, margin trading can amplify losses too in a similar way.

Just as profits, losses are a possible and can erode your capital quickly. In intraday trading, you can get more margin amounts from the broker. This can be lower than the margin available in delivery-based trades. This is because, with intraday, there’s an assurance of the trade getting settled on the same day.

How can Your Approach for Intraday be Different Than for Delivery Trades?

Different investors wear different hats and follow different strategies. An investor’s approach toward markets will be different than a trader’s. And that’s why it pays to know which approach can suit you.

• Trading volumes:

This is the number of times a company’s shares were bought and sold during a day. Stocks of larger and better-known companies generally have higher volumes because many people regularly buy and sell them. Experts recommend sticking to such stocks for intraday trades. This is because you will be betting on prices changing materially in a short space of time. Therefore, you need enough liquidity and volume so that you can easily sell your shares during the day when need be. If a stock has low volume, it generally becomes difficult to sell at an attractive price because there may not be enough sellers on the other side. In contrast, long-term trades can bear the weight of low volume and liquidity because you can defer selling a stock until it reaches your target price.

• Price levels:

An ideal practice is to set price targets and stop losses for both types of trades. But they are more important for intraday trades. Since these trades are more time-sensitive, opportunities to lower losses and exit at high prices can be few. Setting price targets and stop losses help make the most of such opportunities. With longer trades, you can extend your investment period if you miss your target price.

Many delivery traders may even revise their target upwards and hold the stock longer. This isn’t possible in an intraday trade. You may not get another opportunity once you miss the price level in an intraday trade. Similarly, when delivery traders are losing money, they can wait for the price to rebound in the case of a long trade. But this tends to be harder in an intraday trade.

• Investment analysis:

Intraday trades are usually based on technical indicators. These indicate a stock’s expected short-term price movements based on its historical price chart. Intraday trades can also be event-driven. For example, if a company wins a major contract, a trader may want to invest in its stock, hoping it would appreciate on the day. But neither of these approaches tells you whether a company is destined for long-term success.

With delivery-based trading and investing, experts suggest investing in companies that have strong long-term prospects. This requires an in-depth analysis of the company’s business environment and internal operations. You will also need to do a lot of number crunching to understand the company’s financial situation. This is called fundamental analysis.

• Common Mistakes in Trading and Tips to Avoid Them

Options trading can be complex, and traders often make costly mistakes.

One common mistake is failing to understand the risks and mechanics of options. Many traders jump into options without understanding the “Greeks,” time decay, or volatility, leading to poor decisions. To avoid this, educate yourself on how options work and practice with virtual trading before using real money.

Another frequent error is overleveraging. Options provide high leverage, tempting traders to bet more than they can afford to lose. To mitigate this, set a strict risk management plan and never risk more than a small percentage of your capital on any trade.

Traders also often ignore Implied Volatility (IV). Buying options with high IV can lead to losses even if the underlying moves in your favour, as IV drops after major events (known as the "volatility crush"). Always assess IV before entering a trade.

Holding options too long is another mistake, as time decay (Theta) accelerates near expiration. To avoid this, set clear exit strategies.

Some traders sell uncovered options without considering unlimited risks. Avoid this by sticking to defined-risk strategies, like spreads, and maintaining disciplined stop-loss orders.

• Utilising Fundamental and Technical Analysis for Trading

Combining fundamental and technical analysis can enhance trading decisions by providing a comprehensive view of market opportunities.

Fundamental analysis focuses on evaluating the intrinsic value of an asset by analysing financial statements, economic indicators, and industry trends. For stocks, factors like earnings reports, revenue growth, and macroeconomic conditions (e.g., interest rates or inflation) are key. This approach helps traders identify undervalued or overvalued assets and assess long-term potential.

On the other hand, technical analysis examines price movements, patterns, and trading volume to predict future price behaviour. Tools like trendlines, support and resistance levels, candlestick patterns, and indicators (e.g., RSI, MACD, and moving averages) are used to identify entry and exit points. Technical analysis is particularly useful for short-term trading and timing trades effectively.

The synergy of both approaches offers a more balanced strategy. For example, a fundamentally strong stock (e.g., high earnings growth) can be paired with technical tools to identify an optimal buying opportunity during a pullback.

-#### The Bottom Line

To each their own. Intraday trading is suitable for traders with the stomach for higher risks and losses and for the timely monitoring of market happenings. If not, it would be better to opt for delivery-based trades. The good news is you can easily convert an intraday trade into a delivery-based trade after placing the order.