One of the best things about the stock market is that people can invest in various ways based on their financial objectives. Individuals who want quick profits can make short-term investments, whereas people desiring capital generation over a longer tenure can go for long-term investments.
After individuals open Demat accounts online along with trading accounts, there are various tactics, which they can employ to make profitable investments. There is intraday trading for short-term investors, whereas long-term investors can go for IPO shares. New investors might question, which is better, intraday trading or IPOs. This article covers just that.
What is intraday trading?
Intraday trading is an investment strategy, which involves buying and selling securities within a single trading session. It involves taking advantage of market volatility to profit from short-term price movements.
The advantages of intraday trading
● Quick profits
As intraday trading leverages short-term price movements, investors can book profits within a day. Moreover, they can conduct several transactions within a trading session, which can increase their returns.
● Low transaction costs
In intraday trading, there is no delivery of shares involved. Thus, transaction charges are lower in comparison to other trading methods, which reduces expenses on the trader’s end.
Disadvantages of intraday trading
● Requires thorough knowledge of the market
To earn profits from intraday trading, one needs in-depth knowledge of the stock market. Additionally, the individual must know how to use technical indicators to analyze real-time market data to make prompt decisions.
Thus, intraday trading is not for newbies but for investors who have been trading for a significant period.
● Need for constant monitoring
Intraday trading is also a very time-consuming affair. This is because traders must constantly monitor the market throughout the trading session and make prompt decisions based on the market’s situation. For people having a day job or any other type of engagement, this trading tactic can become hectic.
What is an IPO?
Initial Public Offering (IPO) is a process by which a privately held company issues equity shares in the primary market for sale to the public. Organizations usually do it to raise capital and become publicly listed entities.
Investors can subscribe to an IPO for a specific number of shares, which they will receive in their online Demat account after the bidding process ends.
Advantages of IPO investments
● Discounted prices
In IPOs, shares are usually offered at discounted prices in comparison to their market value. Thus, it is an excellent way for investors to add high-quality stocks to their portfolios at low prices. Moreover, share prices tend to skyrocket when they hit the secondary market, allowing IPO investors to book high profits.
● High long-term return potential
Investing in IPOs of businesses, that operate in high-growth sectors like technology, finance, etc., can serve as an excellent long-term investment. As the company grows, so will the stock value, facilitating long-term capital appreciation.
Disadvantages of IPO investments
● Lack of historical data
One of the major disadvantages of IPOs is that they lack historical data. Thus, investors are unable to analyze price patterns and predict the stock’s future movements.
● Listing day losses
Due to high volatility in the market, IPOs can experience listing-day losses. It is a situation when the stock prices fall significantly on the listing day and go below the issue price, causing heavy losses for IPO investors.
Intraday or IPO – which is better for investors?
To determine which is better intraday trading or IPOs, investors must know their key differences:
● Investment horizon
When it comes to deciding on an investment strategy, tenure plays a vital role. Intraday trading is a short-term investment strategy, which helps investors book profits from daily price fluctuations.
On the other hand, IPO investments are essentially a long-term investment strategy. People hold on to their shares to avail long-term wealth generation; however, they can also sell off their holdings on the listing day in case the list price is higher than the issuing price.
● Capital requirement
In comparison to other investment methods, intraday trading requires less capital. This is because investors need to pay only the margin amount, enabling them to maximize their buying power.
Alternatively, IPO investments require a significant amount of capital. They usually have a minimum order quantity, which requires individuals to purchase a specific number of shares to take part in the process.
So, it ultimately rests on the investor to decide whether intraday trading or IPOs is the better investment method. Individuals who have extensive experience in the market and want short-term gains can go for intraday trading. Conversely, people who want to facilitate long-term capital appreciation can choose to invest in IPOs.
Moreover, new investors must remember that they need to open a Demat account to invest in IPOs. For this, they can opt for an online Demat account from their preferred brokerage firm.
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