How to Start Delivery Trading?
Delivery Trading is a system of trading that provides an opportunity to invest in stocks over the short term (more than 1 day) or long term.You can engage in this type of trading through a share market app.
For example, let’s say, you purchased shares of an XYZ company. After you have completed the purchase transaction, the shares are credited to your demat account after T+2 days. This act of your demat account being credited with the shares is referred to as delivery of shares.
However, how to do delivery trading?
How can you start delivery trading?
To start with delivery trading, you need a Demat & Trading Account. A Demat & Trading Account can be opened with a Depository Participant (DP) which could be any authorized bank, broker, or financial institution like IIFL.
The decision of opening a Demat and trading account with a Depository Participant (stockbrokers) depends on its brokerage charges, AMC, demat account opening charges, ease of account opening, operating convenience, online or offline opening, the time taken to open the account, and many more factors.
Once you select a Depository Participant (DP), in this case, IIFL, to open an Account, the normal procedure (whether online or offline) to open a Demat cum trading account is as follows:
- Visit www.indiainfoline.com or the IIFL markets mobile app. Click on open a Demat account» Enter Basic details.
- You will receive a one-time password (OTP) on the mobile number.
- You will also receive a link on your registered email id. You need to enter the OTP received on your registered email id.
- After verifying the OTP, fill out the online Account Opening Form.
- Your Relationship Manager will then contact you for the necessary documentation.
- Once the documentation process is completed, and the forms are received at HO, the account will be opened within 24 hours.
Points to keep in mind
Once opened, add money to your account, maintain sufficient funds at all times and you can start trading.
Remember to always DYOR (Do Your Research) before making a trade decision. Ensure that you have considered your investment strategy, company fundamentals, market sentiment, long & short-term benefits, macro-economic trends, and any other stock-specific information before venturing into delivery trading.
- There is no requirement of a ‘minimum balance’ of securities to be held in the Demat account.
- You can have more than 1 Demat account linked to a single PAN card.
- You cannot hold multiple Demat accounts with the same Depository Participant (DP).
What are the Advantages of Delivery Trading?
Having covered how to do delivery trading, let’s understand the advantages of delivery trading.
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Ownership Rights
The securities in your Demat Account give you ownership rights because you have paid the full amount to purchase & take delivery of the securities. These securities can be used as pledges in the future against personal loans.
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Control
Ownership rights provide you with complete control over the securities. You can decide when or whether to sell them or not, the number of units to sell, and more. You are not forced to sell & hence you control your profit and losses.
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Stock Specific Advantages
Holding securities keeps you eligible for dividends, stock bonuses, right issues & value creation due to mergers.
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Long Term Investment
You can hold the securities for as long as you want. You can take benefits of long-term wealth creation through stock value appreciation & dividend pay-outs. Holding securities for a longer period also involves taxation at a favorable (lower) rate of tax which helps in tax planning and reducing the overall tax burden.
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Simple & Less Risky
Delivery Trading is simple to understand & involves less risk as compared to other trading options available. It brings in trading discipline & reduces speculation.
Delivery Trading Charges and Minimum Margin
Delivery Trading has its advantages but they come at a cost. Below are the different types of charges levied on each trade:
- Brokerage – Brokerage charged by DP can be variable (generally between 0.25% - 0.55%) or can be a flat rate (generally between Rs. 20 per trade to Rs 50 per trade).
- Exchange Charges – A minimal charge levied by NSE/BSE to execute the trade. (0.003%)
- SEBI Turnover Fees – A minimal charge by SEBI to regulate the market. (0.00015%).
- STT/CTT (Securities/Commodities Transaction Tax) is levied by the government to avoid tax avoidance & bring in taxation at the source. (0.100%)
- Stamp Duty – As trading in the market involves the use of instruments (eg- contract notes), the government levies a minimal charge of approximately 0.01%.
- GST on the above-mentioned charges. (18% on Brokerage, Exchange Charges & SEBI Turnover Fees).
Minimum Margi
Margin is a type of fund that a stockbroker offers investors to let them buy shares higher than the amount they pay. Investors pay a small amount to purchase a stock and the broker pays the rest of the amount. This allows investors to trade more with a small amount of money. Brokers offer this margin amount at a high rate of interest. This is a common industry practice. You can use this option once you gain more experience & confidence in delivery trading.
As per the new SEBI rules, a minimum margin is now required to make a delivery trade. The minimum margin % required is dependent on the stock which varies as per market conditions. This means that to maintain a minimum margin, you can either keep a sufficient cash balance with your broker or pledge existing securities from your IIFL Demat Account.
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Frequently Asked Questions
Yes, you can convert a delivery trade to an intraday trade by squaring off your position before the close of trading hours (generally around 3:10 – 3:15 pm) on the very same day. Make sure to have sufficient funds in your account to cover the trade value. Normal transaction charges would be levied as discussed above.
- Delivery traders make money through capital appreciation (buy low, sell high). If they hold a security/share over the long term, they also receive returns on their capital in the form of stock dividends, stock bonuses, rights issues, stock splits & mergers, and acquisitions.
- Long-term capital gain transactions are also taxed at a lower rate of tax thus enabling tax planning.
- Capital gains can also be set off against capital losses (subject to certain income tax rules) to reduce the overall tax burden.
Yes, you can sell shares at any point of time in delivery trading. Once you purchase a security, you will receive the delivery of the same in your Demat account after 2 working days. India follows a T+2 settlement cycle. Once you receive the security in your account, you can then sell it the next day, after 20 days, months, or even years. The time and quantity to sell are completely under your control.