What is Delivery Trading: Benefits, & How to Start

Delivery trading is like buying something you plan to keep. You buy stocks, bonds, or other investments and hold onto them instead of selling them quickly. Unlike buying and selling within the same day, you actually own the share you buy with delivery trading. You'll pay the full price for them, and they'll be added to your account. This means you can potentially benefit from the value of your share going up over time, and some might even earn you dividends. There are different types of trading, but this type of trading is good for steady growth over time without having to buy and sell frequently.

What is delivery trading?

When traders buy shares with the intention of becoming the owner, it's called delivery trading. In contrast, in intraday trading, positions are closed out before the market closes. When trading delivery, investors pay for the assets in full and have them deposited into their demat account. 

Who should do delivery trading?

Delivery trading is suitable for investors who want to grow their wealth over the long term by profiting from potential price appreciation and dividend income.

How delivery trading works in the long haul?

In delivery trading for the long haul, it's all about buying a share you believe will grow in value over time. Here’s how it works:

1. Buying and Owning: You purchase stocks, bonds, or commodities outright, paying the full price and becoming the owner. These are added to your account.
2. Holding Power: Unlike short-term trading, you keep these longer trades, aiming to profit as their market value increases.
3. Potential for Dividends: Some stocks pay dividends, which are like bonus checks. Over time, these add to your overall return.
4. Less Frequent Trading: This strategy is about buying and holding, so you don’t need to constantly monitor the market or trade often.

Note: There is some risk, as markets can fluctuate, but holding trades longer aims to smooth out short-term dips and benefit from long-term growth.

Advantages and Disadvantages of Delivery Trading

Before you start trading with delivery trading strategy, do know it's list of advantages and disadvantages: 

Advantages 

1. Long-Term Growth Potential: Holding shares for an extended period leads to significant price appreciation.
2. Dividends: Stocks may pay dividends, giving regular income in addition to potential capital gains.
3. Lower Transaction Costs: With fewer trades, you save on brokerage fees and other transaction costs.
4. Ownership: You become the official owner of the assets, giving you benefits like voting rights in companies you hold shares in.

Disadvantages

1. Market Risk: Long-term investments are subject to market fluctuations, which can lead to losses if the market performs poorly.
2. Capital Tied Up: Your money is tied up in investments for a longer period, making it less liquid and potentially unavailable for other opportunities.
3. Slower Gains: Unlike day trading, profits may take longer to realize, which can be less appealing if you seek quick returns.

Example of delivery trading

Suppose you believe in the long-term potential of a company named XYZ Ltd. You decide to buy 100 shares of XYZ Ltd. at a current market price of Rs. 500 per share. You place an order with INDmoney, and the trade is executed. The shares are credited to your Demat account after T+2 days (settlement period).

Here, you've engaged in delivery trading. You now own 100 shares of XYZ Ltd. and can hold them for as long as you want. If the price of XYZ Ltd. goes up in the future, you can sell your shares at a profit. You might also receive dividends from XYZ Ltd. while you hold the shares.

Delivery Trading: Margin set by SEBI

Keeping a specific amount of delivery margin in your trading account is a prerequisite. You must pay the entire amount due based on the securities' current market value when you accept their delivery and retain them. 

In reaction to changes in the market and other socio-political factors, SEBI sets a delivery margin requirement and periodically updates it. Ensuring traders have sufficient funds in their accounts to pay for the securities they have purchased. As per the latest ruling, there needs to be a 20% delivery margin at all times.

Conclusion

Delivery trading is an attractive option for people who want to make money in the stock market over the long term. It possesses a potentially higher return potential. However, delivery traders should consider the various fees prior to making a trade. A trading account and Demat are prerequisites for starting trading delivery. With INDmoney, you can open a free demat and trading account.

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