The stock market is now one of the most popular regular income earning options. More and more people are putting their savings into the stock market to make higher returns. The stock market has the ability to multiply the investments and create huge wealth. Now people are opting to become a professional trader in the stock market and earn daily income through it. However, this is not an easy task, you must have the skills and technical knowledge to be a successful trader.
A trader in the market can indulge himself in margin/intraday trading and delivery trading. In this article, we will learn about both the concepts in detail.
Let us first understand what is margin trading?
Meaning of Margin Trading
Margin trading is a process in which the trader buys more stocks than what he can afford to. In other words, margin trading is also popularly known as intraday trading in India. Many brokers provide this service to their clients. The margin trading is done by done buying and selling the shares or securities in a single trading session. Since margin trading is becoming popular, the brokerage houses have eased the process and time duration.
Intraday trading is the process in which the trader speculates the price or stock movement in a trading session. It is not wrong to say that intraday trading is a quick way to make good money. In the margin trading account, the broker allows the trader to buy more quantities of stock than what he can afford. Here the broker lends the trader to buy shares and keeps them as collateral.
To trade with a margin account you must first place the request to open a margin account with the broker. You can open a margin trading account after paying a certain sum of upfront money in cash to the broker. This amount is known as the margin amount. The margin money is taken by the broker to square off the transaction when the trader incurs losses and fails to repay the money.
Before you start trading using the margin account you must remember the following points
- You must always maintain the minimum margin (MM). This is because the stock markets are volatile and the stocks can have a huge fall on any given day. The margin money is pre-determined by the broker on the basis of the total value of trade.
- At the end of the trading session, you must always square off your transaction. If you have sold shares then you have to square off the trade by purchasing them before the end of the session. And if you have bought shares then you must sell them before the market closes.
- In case you want to convert the trade into delivery order than you must have the cash available with you to pay for the stock along with the brokerage fees and other charges that are applicable.
Let us now understand what is delivery trading?
What is Delivery Trading?
Delivery trading is very different from the margin or intraday trading. In delivery trading, you receive the shares in the Demat account. When you receive the shares in the Demat account you get the ownership of the stocks which is not the case in intraday trading. The shares in the delivery can be held by for as long as you want.
In the case of intraday or margin trading, the trader must square off his position by the end of the session which is not the case with delivery trading. Also, the profits in intraday trading are dependent on the price movement during the day whereas in the case of delivery trading the returns are dependent on the long term price movement.
Let us now learn about the approach that you must adopt for intraday and delivery trading
Approach For Intraday And Delivery Trading
- Trading Volumes
Trading volume is very important when you are into intraday trading. This is because you can square off your trade when there is a sufficient number of buyers and sellers in stock. Higher volume in stocks suggests higher demand and higher supply. Therefore it is always advisable to intraday traders to trade in stocks having higher volumes. On the other hand, the delivery traders do not require to square off their trade on the same day. Therefore they can afford to purchase stocks in the absence of higher volume. Long term delivery traders do not depend on the volatility of the stock because they can sell it at a later date when the stock reaches their target price.
- Price Levels
Putting price targets and stop losses in place is very important for margin or intraday traders. Since the intraday trades are time-sensitive i.e. lesser opportunities to exit at higher prices and lower the losses. Therefore, it is always advisable to put price targets and stop losses in place to take advantage of limited opportunities. On the other hand, delivery traders do not require to put stop losses or price targets in place. This is because they will get many chances to exit or reassess their position. The delivery traders can wait for the stock price to rise when they are losing money. This is not possible in the case of intraday trading.
- Investment Analysis
Intraday or margin trading is done on the basis of technical indicators. The technical indicators use graphs and statistics to determine the price movement in stock for the short term. The technical analysis uses the historical price chart to predict the future price movement. On some occasions, the intraday traders can take the trade on the basis of an event or news flow in certain stock. On the other hand, delivery trading is done on the basis of fundamental analysis of a company or experts suggestion. The in-depth analysis of the business and its surrounding environment helps to know the future trend of the stock. Fundamental analysis also involves understanding the financial situation of the company.
The above are a few points that every margin and delivery trader must remember when they take a trade. The suitability of intraday or margin trading and delivery trading varies from trader to trader. If you can take high risk than margin trading is right for you and if you want to play a little safe than delivery trading is ideal for you. The good part about intraday trading is that you can convert your holdings into delivery trading.
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