Introduction
Among the various forms of trading strategies prevalent in the stock market, delivery trading is the most popular. In this type of trading, you purchase and retain ownership over your shares for more than one day. Unlike intraday trading, where the goal is to buy and sell stocks on the same day, delivery trading allows you to hold shares for an extended period. You can extend the duration for weeks, months, or even years. Read ahead to learn more about this type of trading to understand if it aligns with your interests and goals.
How does delivery trading work?
In delivery trading, when you buy shares, they are deposited into your Demat account, which holds them electronically. You are not obligated to share these shares immediately. You enjoy the flexibility to hold them indefinitely until you deem it beneficial to sell them. Unlike day trading, where shares are sold before the market closes, the focus in delivery trading is on long-term growth potential. You own these shares for as long as you hold them and are entitled to voting rights in the company.
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Key features and advantages of delivery trading
Some of the beneficial characteristics of delivery trading are explained as under:
· Ownership and control
Delivery trading provides you with actual ownership of shares. They remain in your Demat account until you decide to sell. You have complete control, unlike intraday.
· Lower risk than intraday
Compared to intraday trading, delivery trading is less risky as it is not subject to same-day volatility. You can hold on to your shares through periods of market fluctuations.
· No time limit for selling
Since there are no obligations to sell shares on the same day as intraday, delivery trading keeps you at ease. You need not stress about daily trading strategies or timing the market.
· Eligibility for corporate benefits
As a rightful owner of the shares, you can benefit from corporate actions such as dividends, stock splits, or bonus issues. This adds value to your portfolio over time.
· Simplicity and ease
Delivery trading is straightforward. It involves no margin or complex financial processes. You can engage in this type of trading even as a beginner as it is easy to understand and participate.
Charges associated with delivery trading
Make a note of these common charges to get an accurate estimate of how much delivery trading costs you:
· Brokerage fees
Some brokers demand zero brokerage for delivery trades. However, a portion of brokers charge a percentage of the transaction. These fees add up if you trade frequently.
· Securities Transaction Tax (STT)
Every delivery trade attracts STT. It is a tax levied on both the purchase and sale of shares. It is a mandatory financial obligation imposed by the government.
· Demat Account maintenance fees
As the shares get stored in your demat account, it comes with maintenance costs. Such annual maintenance fees vary depending on the stockbroker you choose.
· Turnover fees
The Securities Exchange Board of India or SEBI levies a turnover fee based on the value of shares traded. Understanding this cost helps you evaluate the net profitability of your investments.
Important tips for delivery trading
To make the optimal use of the opportunities delivery trading presents, follow the below tips:
· Conduct thorough research
Before investing, study the fundamentals of the company. Look into aspects like its financial health, business model, and prospects. Use this information to make a calculative decision.
· Diversify your portfolio
Spread your investments across different sectors and industries to reduce risks. Diversification helps protect you against losses from a single stock or sector underperforming.
· Monitor your investments
Even though delivery trading is long-term, it is critical to periodically review your portfolio. Stay updated on company performance and market conditions to adjust your strategy when necessary.
· Buy during market corrections.
Timing your purchases during market dips or corrections can enhance your long-term returns. This is because you book at lower prices and hold them for appreciation over a long period.
· Use stop-loss orders
To limit your potential losses, set up stop-loss orders. Under these orders, you can automatically sell a stock when it reaches a predetermined price. This protects your investments from downturns.
Conclusion
Delivery trading is a reliable strategy if you are seeking long-term growth. It offers the flexibility of holding shares for an undefined period. So, you can benefit from price appreciation, dividends, and other corporate actions. However, it requires patience, thorough research, and an understanding of market risks. It is worth considering if you want to lower the risks that usually come with time-sensitive trades like intraday. With delivery trading, you can gradually build your wealth in the stock market. It lets you achieve your long-term financial goals with a more patient approach rather than seeking quick returns.
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