The concept of delivery trading is actually quite simple. It refers to the purchase of stock by delivery traders. They hold it for an extended period until the right time to sell arises. The objective for delivery traders is to hold onto the stock with the aim of generating a profit.
The duration that the stock is held onto can range from two days to several years. Unlike other forms of trading, such as Contracts for Difference (CFDs), where ownership of the underlying asset is not required, delivery trading involves the trader taking delivery of the stock.
Delivery Traders: How It Works
Implementing delivery trading is a straightforward process. Delivery traders analyze companies to ensure they buy stocks with good long-term growth potential.
The trader buys the stock and holds it for months or years. The decision to sell depends on the stock’s performance, market conditions, and the trader’s goals. Saying that, a trader may also decide to sell their stocks if they are underperforming, to limit monetary losses.
What is the appeal?
Why does delivery trading appeal to traders, especially beginner traders? Well, there are several reasons.
- Delivery trading is pretty simple. You pick your preferred stock, and you purchase it, budget permitting. You check on it intermittently without the need for daily monitoring. This not only makes it easy to manage, especially for someone with limited time, but it also offers a pace that’s easier for beginners. This is particularly helpful for those still learning to navigate financial markets.
- In delivery trading, you retain full ownership of the stocks. This gives you the freedom to decide when to sell them and for how much.
- Seeing as a delivery trader actually owns the stock they’ve purchased; they may be eligible for dividend payouts to shareholders.
- Becoming a delivery trader offers you time to learn about various companies and industries. Additionally, you can study the economic factors affecting stock performance. This will help you become a more knowledgeable trader over time, increasing your potential for making better informed financial decisions.
- Delivery trading is great for someone with sufficient capital to invest in trading and prepared to wait patiently for returns. In other words, it’s best suited for a trader with a focus on low maintenance, wealth accumulation over the long term rather than aiming for immediate gains.
Ultimately, delivery traders are long-term investors. They aim to hold assets for an extended period, seeking gradual wealth accumulation.
In this context, some examples of delivery traders include Warren Buffett, Charlie Munger, John Bogle, Peter Lynch, and Benjamin Graham.
These traders are known to emphasise patience, a focus on the intrinsic value of stocks, and the benefits of holding positions through market cycles. These are important components of the delivery trading strategy.
Delivery Traders’ Downsides
The answer to this question is relatively nuanced as while each trading strategy has something unique to offer, not every strategy is suited for every trader. So, what, if any, are the downsides of delivery trading?
While considered easier to manage than faster-paced trading approaches, delivery trading requires high levels of patience. This can be a drawback, especially since returns may take months or even years to materialize.
Which leads us to the next challenge, the need for strong emotional discipline when the market is going through a volatile period and the urge to sell is high.
Compared to some other strategies, delivery trading often requires significant capital to purchase stocks. This is unlike CFD trading for instance where leverage allows traders to open larger positions with a smaller investment.
Key requirements for becoming a delivery trader
If you are looking to increase your potential for making a success of delivery trading, the following tips may be useful:
- Learn everything you can about fundamental analysis. You will need to know how to assess the value or financial health of a company in order to choose what stock to purchase more wisely. This means knowing how to read and understand financial statements, directors’ reports, audit statements, earnings reports, growth projections, etc.
- Keep informed of market trends, industry trends, and economic indicators that may impact the value of the stock you intend to buy. Stock values are influenced by various factors, such as company news, investor sentiment, economic conditions, geopolitical uncertainties, and interest rates. To make informed decisions, you must stay ahead of new releases. This will help you know when to buy and when to sell the stock.
- Consider diversifying your portfolio to spread risk. Instead of investing all your capital into one stock or industry, consider purchasing stocks in different companies or from different industries. In this way, you mitigate the risk associated with a single stock or a single sector’s performance.
- As with any trading strategy, ensure you have clear objectives in mind and build a trading plan around those objectives. The plan is important for setting clear goals, managing risk, and maintaining focus. For delivery trading in particular, a well-structured plan provides the framework for making informed decisions about potential entry and exit points, position sizing, and portfolio diversification. Additionally, a trading plan can also prevent emotive trading as it ensures that trades are based on research and analysis rather than knee-jerk reactions to market volatilities or short-term sentiment.
Invest in ongoing learning
An informed trader is someone who takes the time to learn more about the financial markets they’ll trade in, as well as the fundamentals of trading itself.
Learning how to trade has never been easier, with internet connectivity making trading related educational resources accessible to just about everybody.
In fact, most brokers today offer a wide range of learning tools to help their traders become more skilled. These tools range from blogs and e-books to podcasts and webinars.
They also include in-person seminar or trading exhibitions, online trading courses, and videos-on-demand. This ensures that traders can engage with the material that best suits their learning style.
If you’re looking for more hands-on experience, then consider signing up for a demo trading account. For a delivery trader, this will give you the opportunity to learn more about fundamental and technical analysis, a valuable skill for when you decide what stocks to buy.
Trading with T4Trade
T4Trade is a popular global broker with clients worldwide. The broker offers top-tier, 24/5 multilingual customer support, cutting-edge trading platforms, and flexible trading conditions.
T4Trade is also a great go-to resource for traders looking to learn more about forex trading in a user-friendly way. A variety of videos, podcasts, eBooks, webinars, and videos-on-demand are curated by in-house specialists, catering to all types of traders.
T4Trade traders can also choose from a wide range of trading instruments across 6 asset classes, and enjoy flexible leverage, competitive spreads, fast trade execution and seamless deposit and withdrawal options. Traders can also choose from multiple trading accounts that best suit their needs and individual preferences.
免责声明: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
