What is Online Share Trading
Share trading refers to the buying and selling of the shares of companies that are listed on the stock exchange for profit-making. National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two major stock exchanges in India that facilitate online trading. Online share trading is the method of transacting financial products online using the platforms provided by brokers. It can be used to transact in all kinds of financial instruments like stocks, bonds, ETFs, futures options, etc.
Traditionally, when an investor wanted to buy shares, they used to call their broker and asked for placing a buy order for a specific number of shares of a company. The broker would convey the current market price and help place the order. Now, this process is simplified, and the control is in the hand of the investor where they can check prices and place orders on their own using the trading platform.
What happens when you purchase a share?
Once you buy a share of a company, you start owning some stake in the company. For instance, if a company has issued 2000 shares of which an investor owns 200 shares, that means he holds a 20% stake in the organization. This results in shareholders getting a say in the company’s governance and is eligible to vote on major decision-making policies of the company.
Even though this maybe beneficial for those who control a major portion of the company’s shares, from a retail investor point of view, they’ll only gain once there is a price appreciation in the share markets. Hence, investors try to make profits from share trading through the process of selling shares at a price higher than the buying price
How to start trading?
To start trading online you need two accounts- A Demat account and a Trading account. Stock exchanges don’t allow direct trading. You can only trade through a SEBI-registered stockbroker.
- Demat Account: It is used to store the shares electronically. They are provided by the two depositories - National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL).
- Trading Account: It helps to place buy and sell orders of shares in the stock market. It gives the interface to check the live prices of shares.
To open an account, you must have:
- PAN Card
- Bank account
- Documents for address proof
- Documents for identity proof
After you open your Demat & Trading account, you can add money to it and start buying and selling shares.
How Does Online Share Trading Work?
When a user places the buy order for any share, the order gets forwarded to the Exchange. If the price matches with another user’s order who placed a sell request, the order gets executed. The order is settled by the Clearing Corporation. It takes T+2 days for settlement where T is the day of trade. Post-settlement share is credited in the Demat account of the buyer.
How are share prices determined?
After the company goes public and the share of a company starts trading on the Stock Exchange, the share prices are determined by its demand and supply.
If the demand for shares is high due to any favorable factor, then the price will increase. Whereas, if the company’s future growth potential doesn’t look attractive, many investors holding the share might start selling it leading to fall in price.
Difference between Trading and Investing
There are basically two types of players in the share market- “Traders” and “Investors”.
Both are often considered similar since both participate in the share market to earn profit. However, there are a few key differences between the two.
Both use different approaches to make a profit in the share market. Let’s look at the two separately to understand how different Trading and Investing is:
| Basis |
Trading |
Investing |
| Risk Involved |
The risk involved is higher as traders try to gain profit from short-term volatility which can be highly erratic. |
The risk involved is lower as investors avoid making decisions in the short-term volatility and aim for long term gains, typically over the months or years |
| Period Of Investment |
It is short-term, as the idea is to earn the slightest possible profit by investing. |
It is long-term as the idea is to hold and grow the investments. |
| Capital Growth |
It focuses majorly on making short-term profits. |
It focuses majorly on growing wealth over the long term through capital appreciation and dividend payout. |
| Style of analysis |
Technical Analysis is preferably used to make decisions |
Fundamental Analysis is preferably used to make decisions |
Share trading time in India
The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two primary stock exchanges in India. The share market trading time for the equity market in both exchanges is between 9:15 AM to 3:30 PM (Monday to Friday).
Conclusion:
Online trading is trading through the digital platform using the internet. With the Bajaj Financial Securities Demat Account you can get the benefit of a flat fee per trade and save significantly on your brokerage. The more you understand about the share market and share trading, the more benefits you can derive.