Table of Contents
Delivery Trading in Stock Market
Stock market trading comes in various forms, from physical buying and selling shares to financial settlements based on share prices. Among these, delivery trading stands out as a prevalent method, which is now primarily linked with investing rather than trading. Investors opt for delivery trading as they aim to retain their stock holdings for an extended period, seeking long-term gains. Unlike intraday trading and other forms involving quick trades, delivery trading focuses on a more patient and strategic approach to capitalize on the asset's growth potential.
What Is Delivery Trading in Stock Market?
One must wonder, what is delivery trading? The primary aspect distinguishing delivery trading is the transfer of shares to your demat account. Once the shares are delivered, there is no specific time limit for selling them back; it qualifies as a delivery trade regardless of the selling timeframe. Additionally, delivery trading requires sufficient funds to buy or hold the shares to sell. When initiating a trade, the necessary funds or shares are frozen while placing the order.
For instance, if you place a Rs 10,000 order, your cash limit should be at least Rs 10,000 to purchase the stocks, and if you wish to sell, you must have the corresponding shares available in your demat account.
How Deliver Trading Works?
One common question- what is delivery in stock market lingers on most people’s mind. Delivery trading involves buying and selling financial assets with actual physical asset delivery upon trade completion. Investors place buy orders through brokers, matching them with sell orders. After trade execution, there is a settlement period during which the buyer pays for the asset, and the seller delivers it. The buyer becomes the legal owner once the transaction is complete. Unlike intraday trading, delivery trading involves a long-term approach, allowing investors to benefit from the asset's growth potential and build a diversified portfolio.
What Is Equity Delivery?
Let's delve into equity delivery, focusing on the process of equity buying and equity selling. In equity delivery buying, you purchase the stock, and the full amount must be paid by T+1 (the next trading day). Subsequently, the stock is delivered to your demat account by the end of the T+2 day. On the other hand, in the case of delivery selling, the trader can authorize the debit using TPIN (Transaction Personal Identification Number) online. On T+1 day, the shares are automatically debited from the demat account, resulting in a reduction of shares in the demat holdings by the corresponding amount.
How to Start Delivery Trading?
To initiate delivery trading, the first step is to open a Demat and trading account through a stockbroker. Here's a step-by-step guide to follow during the account opening process:
1. Visit the official website of the stockbroker.
2. Click on the "Open Account" option.
3. Provide your personal details such as name, phone number, and email ID.
4. Fill in the bank details of the account you want to link with your Demat and trading account.
5. Select a subscription plan that suits your requirements.
6. Upload scanned copies of address and identity proof (e.g., Aadhaar card, driving license, passport), PAN card, and a canceled cheque.
7. Complete the in-person verification by either uploading a video of yourself reading a provided script or using a pre-recorded script.
8. Review your details and digitally sign the account opening form, validating it with an OTP.
9. Submit the form to receive your login credentials.
10. Add funds to your Demat account to start trading.
Once your Demat and trading account is active, you can begin researching and selecting stocks you wish to invest in. Assessing the company's past performance and evaluating its growth potential is crucial before making investment decisions. This careful analysis will help you make informed choices and potentially maximize your returns in delivery trading.
What are the Advantages of Delivery Trading?
● Control: With delivery trading, you have complete control over the stocks you purchase, allowing you to decide when and how much to sell them.
● Long-term benefits: Delivery trading enables investors to enjoy the advantages of long-term stock investing. When a company demonstrates a strong track record and promising growth potential, its stock price will likely rise gradually. This long-term appreciation offers delivery traders the opportunity to profit from the increasing value of their investments.
● Lower risk: Due to its nature of holding investments for extended periods, delivery in stock market poses comparatively lower risks when compared to other trading formats.
What are the Disadvantages of Delivery Trading?
● High brokerages: The main drawback of delivery trading lies in its higher brokerage charges. However, you can take advantage of various demat brokers that offer Zero brokerage and Zero transaction charges, providing potential cost savings for investors.
● Higher Securities Transaction Tax (STT) and costs: Delivery trading attracts higher costs than intraday trading due to the imposition of a higher Securities Transaction Tax (STT) for delivery trades.
● Upfront payment: In delivery trading, you must pay the entire transaction amount upfront, and borrowing funds, as in margin trading, is not permitted. Consequently, you must have sufficient funds; otherwise, you cannot execute the trade. This restriction may lead to missing out on potentially profitable opportunities when lacking funds.
Delivery Trading Charges and Minimum Margin
According to delivery trading meaning, the fees related to delivery trading differ among brokers and typically encompass the following:
● Brokerage Fees
Your stockbroker will levy a brokerage fee on all your transactions, which can be either a fixed amount per order or a variable brokerage based on the transaction value of the order.
● Securities Transaction Tax (STT)
STT is a government-imposed tax applicable to all trades executed through the stock market exchange.
● Exchange Transaction Charges
These charges are additional fees levied by NSE/BSE for conducting the trade.
● SEBI Turnover Fees
On all delivery trades, the Securities and Exchange Board of India (SEBI) imposes a turnover fee of 0.00010%.
● Margin Trade Funding
Margin trading allows investors to buy more shares at a reduced price. In this scenario, the broker covers the remaining amount and applies interest. The sum provided by the investor is known as the margin.
Delivery trading presents an attractive opportunity for individuals seeking long-term gains in the stock market. It comes with relatively lower risk and the potential for higher returns. However, delivery traders should carefully assess the various charges associated with their trades before making investment decisions.
More About Online Trading
Frequently Asked Questions
The profitability of delivery trading is influenced by several factors, such as the performance of the chosen financial asset, the investor's strategy, prevailing market conditions, and the overall economic environment. Delivery trading carries a lower risk than intraday trading, where profits and losses are realized on the same day as the trade.
Intraday trading, although risky, offers the potential for substantial profits in short timeframes. In contrast, delivery trading is less risky and enables investors to hold their positions long-term, facilitating wealth creation in the market.
The purchase must be made on the same day before the auto square-off timing to convert delivery holdings into intraday positions. On the other hand, simple orders can be converted from intraday to delivery, but special orders like Cover Orders (CO) cannot be transformed from intraday to delivery.
Indeed, you can sell delivery shares the day after purchasing them. In most stock markets, once you buy shares through delivery trading, they will be credited to your demat account following the settlement process, which typically takes T+2 days. Once the shares are credited to your demat account, you become the rightful owner of those shares and can sell them at your discretion.