What is Delivery in the Share Market? An Overview | My Espresso

What is Delivery in the Share Market?

Delivery in the share market is a process where shares bought on or before the settlement day are physically transferred from the seller to the buyer. This transfer is done electronically via a clearing house, enabling buyers and sellers to trade with each other without having to go through a broker.

Published on 03 March 2023

Delivery of shares ensures that all trades are settled quickly and efficiently, allowing investors to buy and sell their shares securely and profitably. In this article, we will explore delivery in more detail, looking at how it works, its importance, and its implications for trading.

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Meaning of Delivery in Share Market

Delivery in share market refers to the process of settlement of shares when a trade is executed. It occurs when a buyer settles an agreement to buy securities from a seller by paying for them and taking ownership. The delivery of securities implies that the transaction has been completed and both parties have fulfilled their obligations.

There are two different types of delivery: physical delivery and demat delivery. With physical delivery, hard copies of shares are delivered to the buyer. Demat delivery involves buying and selling shares electronically, with no physical paper involved. In India, all transactions must be done through a dematerialization (demat) account, where trades occur between the buyer's and seller's demat accounts.

How does Delivery in Share Market Work?

In a delivery-based trade, both parties need to have their accounts credited or debited for the money and shares exchanged at the time of settlement. The settlement date is usually two days after a trade order is placed, though, as per regulatory requirements, this may vary from market to market. On this day, all trades are settled based on net positions—that is, all losses and profits are accounted for when closing out positions.

If a buyer purchases shares, the money will be debited from their bank account and credited to the sellers. Similarly, if the buyer is selling shares, then the shares will be debited from their demat account and credited to that of the seller.

An Overview of delivery trading

Delivery trading is a type of trading on the share market where the investor takes physical possession of purchased shares and then sells them at a later date. The investor buys a particular number of shares and holds onto them until they believe they can profitably sell them. This is in contrast to other forms of stock market investing, such as intraday or day trading, which involves buying and selling stocks within one day. Delivery based trading requires a long-term commitment from investors and serves as a more passive form of investing.

What is equity delivery?

Equity delivery is the buying and selling of physical stocks in the share market. This type of investing involves investors taking actual ownership of a stock, as opposed to trading contracts for difference (CFDs) or derivatives that allow traders to speculate on a movement in price without actually owning any underlying assets. When you buy equity shares, you are given legal title to those shares and become an owner of that particular company.

Equity delivery allows investors to participate in the success or failure of a company by directly owning part of it. This means that when the company does well and its stock rises, your investment will also benefit from larger gains than if you were speculating on their performance with CFDs or other derivatives. On the downside, however, you will incur larger losses if the company does badly and its stock value declines.

Equity delivery is a more conservative approach to investing in the share market than trading other instruments, such as CFDs. It also carries less risk since investors are not exposed to any leveraged positions or derivatives, which can be extremely volatile. Therefore, equity delivery is often favored by long-term investors who want to benefit from being part of a successful business over time while avoiding some of the risks associated with short-term trading.

Difference between intraday and delivery trading

Delivery trading refers to physically delivering the securities purchased in a share market transaction at the end of the trading day. This contrasts with intraday trading, which does not involve delivery but involves buying and selling shares within the same day. Intraday trades are settled on a T+0 basis, meaning that profits or losses are realized immediately after the trade is completed.

Delivery trades have a much longer settlement time – typically two days after completion – as they involve the physical delivery of securities between buyers and sellers. Both types of trade carry different risks and benefits, so it's important to understand both before deciding which option is right for you.

Chandresh Khona
Team Espresso

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