Introduction
Often the term ‘ delivery’ is associated with long term investors in the stock market. Exactly, what is delivery in the share market? In simple terms, Delivery trading refers to the process of buying and selling shares with the intention of holding them for more than a day. Unlike intraday trading, where stocks are bought and sold within the same trading day, delivery trading involves taking actual ownership of the shares, which are then transferred to the investor’s Demat account.
Understanding Delivery Trading Process
Delivery trading is another name of Equity Delivery. In equity delivery, an investor purchases the shares with the purpose to own it for some duration where he can wait until the share makes a reasonable profit. These purchased shares will be delivered to the investors demat account.
The trading of these equity delivered shares will be traded using investors trading account . Once the shares are sold by investors , the shares will be transferred to another demat account holder and the proceeds will be credited to the seller investor.
Delivery trading is based on the concept of T+2 settlement, which means that when you buy shares, you need to pay for them within two working days, and when you sell shares, you will receive the proceeds after two working days. This settlement process is facilitated by the stock exchange and the depository participants (DPs) involved.
In delivery trading, traders must cover all margin costs and traders must assure that the costs are paid to the exchange by T+1 days. The trading position must be squared off and if there is a loss , it will be deducted from the trader’s account if the payment for the delivery transaction is not made by T+2 days.
Key Concepts in Delivery Trading
One of the key concepts in delivery trading is the importance of having a Demat account. A Demat account is like a bank account where your shares are held electronically. When you buy shares, they are credited to your Demat account, and when you sell shares, they are debited from your Demat account.
Another important concept is the different settlement cycles in delivery trading. In India, the settlement cycle for equity trades is T+2, which means that if you buy shares on T Day, you need to pay for them by T+1, and the delivery of shares in demat account will complete by T+2 days and if you sell shares on T Day, you will receive the proceeds by T+2 days.
How Delivery Trading Works ?
Delivery in share market follow the below process to buy and sell shares
- Open a Demat account with a reliable stock broker . Enrich Money provides a free demat account for traders and investors.
- Open an online trading account with a reliable stock broker. Enrich Money provides a free trading account for traders and investors. They can transact online through Enrich Money online trading platform or through their Orca mobile app.
- Fund your trading account with the required amount to buy shares in the share market.
- Research , Analyze and Choose Stock for delivery trading. Enrich Money provides stock analysis of each traded stock .
- Place an order to buy stocks either as market order or limit order in the Enrich Money platform.
- Your order will be executed and the stock will be credited to the demat account in T+2 days.
- Hold on the stock for ownership in demat account and for long term return.
Strategies for Delivery Trading
For investors looking to profit from delivery trading, there are several strategies they can consider. Some of the effective strategies in delivery trading are Fundamental analysis, value investing, Buy and Hold, dividend investing, contrarian investing, technical and fundamental analysis, sector rotation , growth investing, value averaging and risk management. Every delivery trading strategy would possess its own risks and rewards. Investors should analyse each strategy and choose the one that would align with their investment goals, risk tolerance.
Advantages of Delivery Trading
- Investors can sell their shares when needed , there is no time limit to sell shares.
- Investors can earn through bonus, dividends and rights issues.
- Investor can earn significant profit as he can wait for the stock to be sold at the right time.
- Lower brokerage charges are incurred when compared to intraday trading
- Investors can own the share through their demat account.
Disadvantages of Delivery Trading
- Investors may face market risk by owning the stock for an extended period. The share price may fluctuate due to uncertain situations which may lead to capital loss.
- Delivery trading does not guarantee any return for holding for a longer period as like fixed income instruments.
- Sometimes, investors will not be able to encash the stock at time of need due to uncertain market situations.
- If the market is bullish, investors earn a profit due to share uptrend whereas if the market is bearish, investors face losses due to share downtrend.
- The investor may face the risk of paying high brokerages in delivery trading , but they can utilize the zero brokerage and zero AMC charges account from Enrich Money to save their investments.
- Imposition of Securities Transaction Tax (STT) on delivery trading , affects investors profit return.
Delivery Trading Charges
The charges levied for delivery trading will vary among brokers.
- Brokerage Fees – Generally stock brokers levies a brokerage for all your transactions. At Enrich Money, they provide a free demat and trading account which you can utilize to trade at zero brokerages and AMC charges. Kindly contact Enrich Money for more details.
- Securities Transaction Tax – STT is a central government tax applicable to stock market transactions.
- Exchange Transaction Charges – These charges are levied by the stock exchanges like BSE and NSE.
- SEBI Turnover Fees – Fees levied by SEBI for all stock market delivery trading at 0.00010%
Conclusion
Delivery trading in the share market is a key strategy for long-term investors looking to build wealth over time. By understanding the key concepts and implementing effective strategies, investors can increase their chances of success in the stock market. Enrich Money provides AMC free Demat accounts, making it easier for investors to get started with delivery trading.
