Income Tax Filing for AY 2024-25 is now open. File early for quicker refunds. Start Now eFile now

Delivery Trading - Definition & Advantages of Delivery Trading

What is Delivery Trading?

Delivery trading is where the trader buys and sells shares intending to be held for delivery on a specified date. The main advantage of delivery trading is that it allows the trader to take physical possession of the shares, which can be helpful if the trader wants to hold onto the shares for a longer period or sell them later.

The Different Types of Delivery Trading

Regarding trading, there are various types of delivery trading that investors can choose from. Depending on the type of asset being traded, the delivery date of the trade, and the specific terms of the contract, delivery trading can be used for various purposes.

 The most common type of delivery trading is spot delivery, which is used to buy or sell assets such as currencies, commodities, or company shares. Spot delivery trades are typically settled within two days, making them ideal for investors who want to buy or sell an asset quickly.

 Another type of delivery trading is forward delivery. Forward trades are similar to spot trades but involve an agreement to buy or sell an asset at a future date. This type of trade is often used by investors who want to hedge against potential price movements in an asset. For example, if an investor thinks that the price of a currency will fall in the future, they might enter into a forward contract to sell that currency at a set price on a specific date.

 

The Advantages of Delivery Trading

There are many advantages to delivery trading. The most significant advantage is that it allows traders to take physical possession of their commodities, which can be important for tax or other strategic reasons. Other advantages include the following:

 1) Reduced counterparty risk - When a trade is closed out through delivery, there is no counterparty risk because both parties have fulfilled their obligations.

 2) Increased flexibility - Delivery trading provides more flexibility than other types of trading, such as futures contracts, because it can be customised to meet the needs of the parties involved.

 3) Lower costs - Delivery trades often involve lower costs than other types of trades, such as Futures contracts, because there are no commission or exchange fees.

 4) Greater transparency - Delivery trades are typically conducted between two known parties, providing greater transparency than other trades.

 

Conclusion

Delivery trading is a great way to invest in the stock market without worrying about short-term fluctuations. With delivery trading, you can buy stocks and hold them for as long as you want, which gives you the potential to make a lot of money if the stock price increases over time. Delivery trading is also very convenient since you don't have to monitor your stocks constantly; you can just set it and forget it. Delivery trading might be right if you're looking for a hands-off way to invest in the stock market.