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How Do Long Term Investments Fare versus Intraday Or Stock Trading?

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The data from two significant depositories, NSDL and CSDL, validates the fact, stating that the total number of Demat accounts has nearly tripled to 11 crores as of Jan 2023. More demat accounts imply investors pouring more money into the stock market. Success stories of winning investors always motivate us to start our investment journey.

But, the next big question that crosses our minds is which investing strategy you should use to maximize your returns: intraday, stock trading, or long-term investing. Let’s face it: you must get the basics right before we can answer. But don’t worry, this isn’t a quick-fire round.

Take your time and get the fundamentals right before making investment decisions. In this blog, we will share everything you need to know about stock trading, intraday trading or long term investment. Then, we will delve deeper into these investing methods to discover how to get returns, stay steady during market volatility and avoid common mistakes that can cost you money.

You will understand these methods and decide which suits your goals, personality, and lifestyle better. So, are you ready to take off? Let’s begin…

What is Intraday Trading and How Does It Work?

Trading within the same day is referred to as intraday trading. In simple terms, an intraday trade occurs when an investor enters into a trade transaction and settles the work by the end of the same day. Securities include stocks, ETFs (Exchange Traded Funds), and other long term investment assets.

To get this concept clearly, say you bought 100 shares of company A at Rs. 10 at 9:45 am. Now you decide you settle the trade at 3:00 pm.

Case 1:Say,  Stock A trades at Rs.  11. In this case, you will book a profit of Rs. 100 (i.e. Rs. 1100- Rs. 1000)

Case 2: Sa, Stock A trades at Rs. 9 at 3:00 pm, and you still keep waiting for the stock price to recover and the session for the day close when the stock price further falls to Rs. 8. Then, your broker will have to square-off the transaction on your behalf at the closing stock price of Rs. ,8 and you make a loss of Rs. 20 i.e.e Rs 80 – Rs. 100).

Risks and Rewards of Intraday Trading

Let’s begin with the rewards

  • Unlike long term investments, your returns are not affected by overnight vital economic or earnings reports about the stock you traded or off-hour broker news.
  • To protect your position, use tight stop-loss orders.
  • More margin leverage

Some disadvantages are as follows:

  • High transaction or commission costs
  • In-depth knowledge of the stock market is required, including intraday charts, sophisticated algorithms, and much more.
  • High volatility necessitates greater risk.
  • More time is required to keep track of intraday price movements.

What is Stock Trading, and How Does It Work?

Stock trading is the buying and selling of stocks of publicly traded companies on stock exchanges such as the NSE, BSE, and NASDAQ. When you purchase a share of a company, you gain partial ownership. However, it is much riskier, and you could lose your investment in the pursuit of quick returns.

Stock trading can be divided into two categories: short-term trading and long term investment, depending on the investor’s preferred holding period. Short-term trading, as opposed to long term investment, refers to buying and selling stocks after holding them for less than one year.

Assume you purchased 100 shares of company A at Rs. 10/- and decide to sell them after a week when prices rise to Rs. 12/-, possibly due to positive news about the stock hitting the market. Then you profit from Rs. 200/- on this short-term trade.

Risks and Rewards of Stock Trading

  • Chances of gaining quick profits are higher if invested with proper fundamental and technical analysis.
  • You can beat inflation with good returns
  • High liquidity

Some challenges of stock trading include-

  • Involves higher risk than long term investment
  • Active participation, sound market research and analysis are required for quick returns.
  • Easily get driven by emotions.
  • You have to pay higher taxes than long term investment.

What is Long Term Investment, and How Does It Work?

Long-term stock investment refers to the buy-and-hold strategy we discussed in depth in our coffee can investing article. Long term investment frequently refers to buying and holding stocks, mutual funds, ETFs, or other securities for more than a year, which can last several decades.

Say you invest in a company that builds commercial towers and malls, generates solar power, deals with EV technology, or any other company/industry that will take three to seven years to grow. You opt for long term investment.

Risks and Rewards of Long Term Investments

Here are the benefits of long term investments

  • Long term investments outperform intraday or short-term trades.
  • Most appropriate for newcomers or investors with limited technical knowledge or time
  • The least volatile and most secure investment strategy
  • Avoid stress because there is no need for constant monitoring.
  • Easily ride out the Highs and Lows
  • Earn good returns with the benefit of compounding
  • Get desired flexibility and room for taking corrective measures

Here are a few risks of long term investments

Sitting with long term investments is not always a good idea in an aggressive market scenario.

Long term investments may not always be liquid.

Stock Trading vs Long term Investing

 Long Term InvestmentStock Trading
Risks and ReturnsLow Risk and High ReturnsHigh Risk and High Returns
Time HorizonLong term (Min 1 year)Very Short term (Upto few hours)
AnalysisFundamental analysis that includes financial analysis, earnings reports and ratios etc.Tracking price movements Technical analysis that includes charts, historical patterns etc.
Commission/ FeesLowMedium
Types of AssetsHigh growth potential and fundamentally strong  stocks are pickedHighly volatile stocks that show a vast range of price movements give better gains.
Risk toleranceLowHigh
TaxesLong-term capital gains are taxed at 10% (only when gains are above Rs. 1 lacs)Capital gains are taxed as regular income and can push you to a higher tax bracket
Skills Patience and discipline are most importantRequire a professional approach in making swift trades.

Intraday Trading vs Long Term Investing

 Long Term InvestmentIntraday Trading
Risks and ReturnsLow Risk and High ReturnsVery High Risk and High Returns
Time HorizonFrom one year to several yearsFrom minutes to a few hours
ApproachLong term investment to pick high-potential stocksEarning quick returns
AnalysisRequire fundamental analysis to understand the business model, financial health and company philosophiesRequire technical analysis and knowledge of market trends.
Commission/ FeesLowHigh
Types of AssetsHigh growth potential and fundamentally strong  stocks are pickedHighly volatile stocks that show a vast range of price movements give better gains.
Risk toleranceLowHigh
TaxesLong-term capital gains are taxed at 10% without indexation benefit  for listed shares (only when gains are above Rs. 1 lac)Capital gains are treated as speculative income and taxed according to your income tax slab.

Key Takeaways

When it comes to investing, there are different approaches to consider. Each method has its own advantages and disadvantages in terms of risk, return, and personal comfort. While stock trading and intraday trading can yield quick profits, they require extensive knowledge and carry high risks. On the other hand, long-term investing is a more balanced strategy to consider.

Investors can maximize their returns by taking advantage of the compounding potential of stocks, diversifying their portfolios for stability, and benefiting from lower costs and taxes associated with holding stocks for extended periods. Conversely, day traders and stock traders experience higher market volatility, increased stress levels, and more competition. For most investors seeking steady wealth growth and consistent financial goal achievement, long term investments are the best.

Is Intraday trading advisable for beginner investors?

To make good gains from Intraday trading, you must have good knowledge of the market trends, price movements and technical indicators. You develop these skills with experience; however, the chances of making a loss are higher. For newbies, long term investment is suitable as the decision is not emotional.

Do long term investments require any research?

Long term investments are better than other types of investments. However, they require research to assess the industry trends, management of the company and its financials. Before making any long term investment, it is critical to thoroughly research the industry in question. Assess the growth opportunities, threats, and competition intensity to determine its long term value.

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