Difference Between Intraday and Delivery Trading
INTRADAY TRADING
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 trading shares intraday is to make quick profits within a 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 trading shares intraday is to make quick profits within a day.
Low Capital
Intraday traders often use margin funds when taking positions.
This way, they get to place a larger trade while paying only a small amount upfront.
Their broker provides the additional funds for the trade.
Thus, the trader is able to bet on a bigger position than his/her capital would allow. This pushes up the potential for profit as well.
This way, they get to place a larger trade while paying only a small amount upfront.
Their broker provides the additional funds for the trade.
Thus, the trader is able to bet on a bigger position than his/her capital would allow. This pushes up the potential for profit as well.
High Liquidity
Intraday positions have to be closed within a single working day. This means the capital invested is tied up for only a few hours. The short timeframe also enables traders to book profits quickly based on price fluctuations. It also allows easy entry and exit from the trade positions.
Time Limit
Intraday trades needs be be sqaured off at the end of each day.
Unimited Losses
Margin traders could face massive losses if their trade moves negatively because of the margin or leverage they have taken
No Overnight Risk
In intraday, trades are squared off before the market closes. So, intraday traders are protected in case the markets shift after hours. This may happen, for example, following the release of adverse news. Any negative news after the market hours will not affect the intraday traders as they are already squared-off.
No Corporate benefits
Intraday positions have to be closed within a single working day. So traders are not eligible for Corporate benefits
DELIVERY TRADING
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.
Low Capital
Delivery traders miss out on the benefits of margin funding.
They have to pay the full sum when buying stocks.
This entire amount remains blocked until the stock can be sold and limits the potential for big returns as well.
They have to pay the full sum when buying stocks.
This entire amount remains blocked until the stock can be sold and limits the potential for big returns as well.
No leverage
There is no question of getting leverage here. Hence full cash amount needs to be paid in upfront before buying any stock in DEMAT account
No Time Limit
Delivery traders are free to hold on to their stocks for as long as they like. This could range anywhere from a few days to several months. If a stock did not perform well in the short term, there is no need to book losses right away. If the stock is good, the trader could hold on for the long term and sell it when the stock rises in valu
Limited Losses
When buying shares for delivery, traders pay the full value of the shares upfront. So, if the trade does not go as planned, their loss is limited to the purchase price
Overnight Risk
In delivery trades, the stocks you buy are added to your demat account. Any negative news after the market hours will affect the price of the shares
Corporate benefits
By taking delivery of shares, traders become part-owners of the company. They become eligible to receive regular dividend and interest payments. They may also get other benefits such as bonus and rights issues
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Margins
What are Margins
An advance payment of a portion of the value of a stock transaction. The amount of credit a broker or lender extends to a customer for stock purchase.
What are different types of margins collected by stock exchanges?
It is payable on daily outstanding scripwise positions. The exchange asks brokers to make certain security available to it in the form of cash, bank guarantee or shares to safeguard against any default of payment against positions taken on a particular day.
Gross exposure margin is normally paid in advance of transactions.
At end of every trading day, brokers are required to collect margin payable against open positions either on the buy side or on the sell side from its clients.
Daily margins are collected to safeguard against eventualities that might occur between two trading days.
In the derivative segment, both the buyer and seller have to deposit initial margin before the opening of the day of the Futures transaction.
The margin is normally calculated taking into consideration changes in
Daily margins are collected to safeguard against eventualities that might occur between two trading days.
In the derivative segment, both the buyer and seller have to deposit initial margin before the opening of the day of the Futures transaction.
The margin is normally calculated taking into consideration changes in
Special margins are imposed on stocks which witness abnormal movement in price or volume. It is a surveillance measure intended to check speculative activity in particular scrip. At the BSE, the margin is levied at 25% or 50%.
This largely depends on the sharpness in the movement of share price or volumes, clientwise net outstanding purchase or sale position or on both sides.
This largely depends on the sharpness in the movement of share price or volumes, clientwise net outstanding purchase or sale position or on both sides.
Mark to market margin is the amount of difference that a buyer or seller has to pay when the market price falls below the transaction price or rises above the transaction price.
The margin is calculated on the basis of difference between a particular day’s close and the previous day’s close. It is mostly applicable in the F&O segment.
The margin is calculated on the basis of difference between a particular day’s close and the previous day’s close. It is mostly applicable in the F&O segment.
The volatility margin is imposed to check abnormal intra-day fluctuations in any scrip. The objective is to ensure that buyers and sellers honour their commitments even if there are wild swings in share prices.
Volatility margin is generally calculated by working out the difference between the highest price and the lowest price over a 45-day transaction cycle and comparing it to the lowest price. The margin is paid in cash or in form of demat shares.
The Sebi-prescribed Ad-hoc margins are imposed on brokers with very large position overall or in specific low price stocks which are illiquid.
What is Record date
It is the date on which the records of a company are closed for the purpose of determining the stock holders to whom dividends, proxies rights etc. are to be sent.
What is Book Closure
It the periodic closure of the Register of Members and Transfer Books of the company, to take a record of the shareholders to determine their entitlement to dividends or to bonus or right shares or any other rights pertaining to shares
What is trend line
When the price of shares moves in a particular direction which persists for a period of time, a price line is regarded as established. When the movement is upward, the trend is called ‘BULLISH’ and when the movement is downward it is called ‘BEARISH’. Bear market is a weak or falling market characterised by the dominance of sellers. Whereas Bull market is a rising market with abundance of buyers and relatively few sellers.
Secondary movements that reverse the uptrend temporarily are known as reactions. The movements that reverse the down trend temporarily are known as rallies. When an uptrend breaks in the downward direction, it is called trend reversal.
What is trading of Partly Paid Shares and Debentures
Companies fix the last date for payment of allotment or call money in case of partly paid shares or debentures and intimate this to all the stock exchanges wherein such shares or debentures are listed. Based on the date fixed by the company, the stock exchanges determine the settlement date upto which transactions in the scrip will be deemed to be good for delivery. After the said date, transactions in the securities take place only if they are paid up to the extent money has been called up.
MARKET MAKING
What is market making
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Market making is a process where the market makers offers a two way quote (both buy and sell) to increase the supply and demand of the scrip. This increase the liquidity in the stock.
Market-making is aimed at infusing liquidity in securities that are not frequently traded on stock exchanges. A market-maker is responsible for enhancing the demand supply situation in securities such as stocks and futures & options (F&O ). To understand this concept better, it would be helpful to have an idea about the existing screen based electronic trading system
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SHORT SELLING
What is short selling shares?
Selling a stock which the seller does not own at the time of trade. All classes of investors, viz., retail and institutional investors, shall be permitted to short sell
FAQ’s on Settlement Cycle
On account of non-delivery of securities by the trading member on the pay-in day, securities are put up for auction by the exchange. This ensures that buying trading member receives the securities. The Exchange purchases the requisite quantity in auction market and gives them to the buying trading member
Why Sell Short?
Short-selling allows investors to profit from stocks or other securities when they go down in value. In order to sell short, an investor has to borrow the stock or security through their brokerage company from someone who owns it. The investor then sells the stock, retaining the cash proceeds
What happens after shares are borrowed
FAQ’s on Settlement Cycle
India is one of the most advanced markets when it comes to settlement of trade. The domestic market follows a T+2 settlement cycle. India is one of the most advanced markets when it comes to settlement of trade.
In a rolling settlement, each trading day is considered as a trading period and trades executed during the day are settled based on net obligations for the day. In India, trades in rolling settlement are settled on a T+2 basis i.e. on the 2nd working day after a trade.
For arriving at the settlement day, all intervening holidays, which include bank holidays, exchange holidays, Saturdays and Sundays, are excluded. Typically, trades taking place on Monday are settled on Wednesday, Tuesday’s trades are settled on Thursday and so on.
Under rolling settlement, all open positions at the end of the day mandatorily result in payment/ delivery ‘n’ days later. Currently, trades in rolling settlement are settled on T+2 basis where T is the trade day. For example, a trade executed on Monday is mandatorily settled by Wednesday (considering two working days from the trade day).
Pay-in day is the day when the securities sold are delivered to the exchange by the sellers and funds for the securities purchased are made available to the exchange by the buyers.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the securities sold are given to the sellers by the exchange. At present, the pay-in and pay-out happens on the 2nd working day after the trade is executed on the exchange, that is settlement cycle is on T+2 rolling settlement.
Pay-out day is the day the securities purchased are delivered to the buyers and the funds for the securities sold are given to the sellers by the exchange. At present, the pay-in and pay-out happens on the 2nd working day after the trade is executed on the exchange, that is settlement cycle is on T+2 rolling settlement.
Whenever a company announces a book closure or record date, the exchange set up a no-delivery period for that security. During this period only trading is permitted in the security. However, these trades are settled only after the no-delivery period is over. This is done to ensure that investor’s entitlement for the corporate benefit is clearly determined
On account of non-delivery of securities by the trading member on the pay-in day, securities are put up for auction by the exchange. This ensures that buying trading member receives the securities. The Exchange purchases the requisite quantity in auction market and gives them to the buying trading member.
Trading at BSE
BOMBAY STOCK EXCHANGE LTD.
Bombay Stock Exchange Ltd., popularly known as “BSE” was established in 1875 as “The Native Share and Stock Brokers Association”. It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878.
It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country.
It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, provides market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers.
It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs.
It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country.
It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, provides market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member-brokers.
It also strives to educate and enlighten the investors by conducting investor education programmes and making available to them necessary informative inputs.
Trading at BSE
The scrips traded on BSE have been classified into various groups.
BSE has, for the guidance and benefit of the investors, classified the scrips in the Equity Segment into A, B, E, P, T, XC, XD, XT, Z, F, G and M/MT groups on certain qualitative and quantitative parameters
It is the most tracked class of scripts consisting of about 200 scripts. Market capitalization is one key factor in deciding which scrip should be classified in Group A.
Represents of two scrips “B1” which consists of scrips relatively liquid and with good track record. “B2” which consists of scrips with comparatively low liquidity.
Represents the fixed income securities
Represents trading in Government Securities by the retail investors
Represents scrips which are settled on a trade-to-trade basis as a surveillance measure
Includes companies which have failed to comply with its listing requirements and/or have failed to resolve investor complaints and/or have not made the required arrangements with the Depositories, for dematerialization of their securities.
Settlement system at bse
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Compulsory Rolling Settlement
All transactions in all groups of securities in the Equity segment and Fixed Income securities listed on BSE are required to be settled on T+2 basis (w.e.f. April 1, 2003).
The settlement calendar, which indicates the dates of the various settlement related activities, is drawn by BSE in advance and is circulated among the market participants.
The settlement calendar, which indicates the dates of the various settlement related activities, is drawn by BSE in advance and is circulated among the market participants.
Pay-in and Pay-out for A B T C F G Z group of securities
The trades done on BOLT by the Members in all securities in Compulsory rolling settlement (CRS) are now settled on BSE by payment of monies and delivery of securities on T+2 basis.
All deliveries of securities are required to be routed through the Clearing House. The Pay-in/Pay-out of funds based on the money statement and that of securities based on Delivery Order/ Receiver Order issued by BSE are settled on T+2 day.
All deliveries of securities are required to be routed through the Clearing House. The Pay-in/Pay-out of funds based on the money statement and that of securities based on Delivery Order/ Receiver Order issued by BSE are settled on T+2 day.
