What is Delivery Trading?
Delivery trading is a very common type of trading. It is now associated more with investing than trading. This is because investors look to hold on to their stockholdings for a longer time. This is not often the case with other types of trading, especially intraday trading.
What is Delivery Trading?
The key feature of delivery trading is actually getting the shares transferred to your demat account. That is it! It does not matter how quickly you sell the stock back; there is no time limit for selling of stocks. As long as you get the stocks delivered to your demat account, it is considered to be a delivery trade.
Another key feature of delivery trading is that you cannot buy without having all the money ready or sell if you don’t hold the shares. So, when you conduct a trade, you essentially freeze the funds or shares while placing the order.
For example, suppose you place an order worth Rs 10,000, the amount of funds allocated for stock-buying (cash limit) should be at least Rs 10,000 or more. Only then can you purchase the stocks. Similarly, if you want to sell shares, the same should be available in your demat account.
Advantages of Delivery Trading
- No time-limit to sell stocks: You can hold on to your stocks as long as you want. It will not go anywhere until you decide to sell it for whatever reason. So you can hold on to your stocks and securities till you make significant profits. You are not bound by time to sell away your stocks at the end of the trading day like in intra-day trading.
- Earn dividends, bonus shares: Since you get delivery of the stocks, you are the owner. You thus earn all the bonuses that the company doles out. This includes encashing your dividends and getting additional shares when the company offers bonus share.
- Higher returns: For long-time investors, dividends and bonus act as the only source of income from investors until they sell the shares. It can thus significantly increase investor’s profits. This is possible only through delivery trading as you have ownership of the shares. Also, holding on to stocks for longer time means more dividends will accumulate. This offers a better chance of higher returns on your investment.
- No risk of short selling: Short selling is when you borrow shares to sell in the market, and then buy it back again before the end of trade. It is a risky trading strategy, which relies on the stock price to fall during the day. In delivery trading, you cannot short sell. So, you bypass the risk associated with it too. (ADD LINK TO SHORT SELLING PAGE)
Disadvantages of Delivery Trading:
- High brokerages: The biggest disadvantage of delivery trading is the higher brokerage charge associated with it. You can benefit with RKSV demat since RKSV has Zero brokerage and Zero transaction charge.
- Higher Securities Transaction Tax (STT) and costs: Delivery trading involves higher costs than intra-trading as the STT imposed is higher for delivery trades.
- Upfront payment: You have to pay the entire amount of transaction up front. You cannot borrow funds as in margin trading. This means, unless you have the funds, you cannot trade. You may, thus, end up losing a good opportunity due to lack of funds.
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