What is Delivery in the Stock Market?
What is delivery in stock market parlance and what is delivery trading all about. Delivery trading is when you buy a stock and take it into your demat account or when you sell a stock you hold via a debit to your demat account. If you are wondering what is delivery in share market, it is just another term for delivery trading and a contrast to intraday trading.
How it works
Before we understand what is delivery in stock market, let us understand how the settlement system works. India is on rolling settlements, so if you buy or sell a stock, you can reverse the transaction the same day and make it an intraday trade. Alternatively, you have to either take delivery when you buy or give delivery when you sell from your demat account. That is what is delivery trading.
What is delivery trading?
Delivery trading in done in the trading account of an investor; dealing in shares that are held in the demat account or to be credited to the demat account. In delivery trading, traders have to pay full margins and ensure that the payment to the exchange is done latest by the first half of T+1. If the payment is not done for the delivery trade by next day morning, the position can be squared off and the loss, if any, will be debited to the client account.
What is equity delivery
Let us understand equity delivery in terms of equity buying and equity selling. In equity delivery buying, you by the stock, pay the full amount latest by T+1 and get delivery into demat account by end of T+2 day. In the case of delivery selling, the trader can authorize the debit with the help of TPIN online and on T+1 day, the shares are automatically debited to the demat account and shares stand reduced by that extent in demat holdings.
Difference between intraday and delivery trading?
Intraday trading is buying and selling on the same day or selling and buying on the same day. At the end of the day, the net position on the stock must be zero. In such cases, the demat account will not be impacted as the profits or losses on the intraday trade will be either debited or credited to your trading account. Delivery trading actually entails taking credit into your demat account by paying the full value of purchase by T+1.
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Frequently Asked Questions
When you want to buy for delivery, you must ensure that full amount is paid for taking delivery. The settlement is done by the clearing corporation but the broker handles that on your behalf. Delivery is always on net positions in the Online trading app. If you bought 500 shares of X and sold 200 shares on the same day, then the 200 shares sold will be intraday while the balance 300 shares net will come into your demat account. That is how delivery works on a net basis.
Brokerages vary from one broker to another but the general practice is to charge higher for delivery trades and lower for intraday trades. Of course, many low cost brokers follow the reverse practice of offering delivery trading free of cost.
Delivery trading is less risky compared to intraday trading. Also, taking delivery of shares and holding for long term is conducive with long term wealth creation.