What is Online Trading?

Traditionally, when an investor wishes to buy shares, he used to call his broker or his brokerage firm and ask for putting a request to buy stocks at a specified amount of a given company. Traditionally, when an investor wished to purchase shares, he would call his broker or his brokerage firm and ask for putting a request to buy stocks at a specified amount of a certain company. Then, after discussing with their client about the current market price of the shares, the broker will confirm the order. After this tedious process the order would be registered on the stock exchange.

On the other hand, online trading has made this process extremely simple and time efficient. With the internet seizing the global stage, trading can be done by a few clicks at anytime from anywhere. It plays a very important role in the life of a trader/investor. It allows investors to make their own decisions without any interference of the broker and thus reducing significant time and effort in the process.

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Benefits of online trading:

  1. Simple & Convenient process: Anything that can be done online makes life simple and convenient. Online trading enables traders to have a hassle-free trading experience. If you have an internet connection and an online Demat Account you are good to go, it saves your time and effort.
  2. Less Expensive: When a broker executes your trades you pay a fee or a commission which costs you more money. However, when you trade online you pay a fee i.e., a brokerage charge which is much lower than the one charged by the broker.
  3. Complete Control: With the help of online trading, you get complete control on your own portfolio hence, giving you greater control over your investments. Now, you can trade anytime during market hours and take decisions on your own without any interference from the broker.
  4. Monitor Investment All time: Investments can be monitored anytime through mobile applications and websites. You can see real-time gains and losses and take prompt decisions on the stocks you want to keep or sell.

How does online trading work?

Now that you have an answer to the ultimate question- “What is meant by online Trading?”. It is time to know and learn how to execute a trade or how online trading works. When you buy or sell shares, the order gets executed within a few seconds. Below are the outlined steps:

  1. Once you place a buy or sell order it matches with the best buy and sell price and accordingly trade is executed.
  2. After execution, a trade confirmation message is sent by stockbroker/exchanges to the clients.
  3. A contract note having the details of trades executed is sent by the stockbroker to the clients
  4. Once the two orders (buy and sell) get matched trade is executed and the clearing process is initiated.
  5. Any trade executed in the equity segment has the T+2 settlement cycle. (Now exchanges have come up with T+1 settlement cycle which shall be executed in a phased manner.
  6. The next step is to fulfill the financial obligations identified in the clearing step, this involves the transaction settlement for the buyers and sellers.
  7. Once the buyer receives securities and seller receives money the trade is said to be settled.
  8. Once the above steps are adhere, the shares are transferred to the buyer’s Demat account through the respective depositories and the amount received after selling the share is credited to the seller’s account.

Offline vs Online Trading

The impact of online trading over offline trading has been remarkable in the past 2 decades with the evolution of internet. Let us look at a few differences between online and offline trading.

  • Ease of trading: With online trading, traders can trade conveniently without any assistance from a broker. On the other hand, an offline account means all the trading is conducted via broker, where a trader is completely dependent upon the services of a broker, special instructions are given. Such dependence is non-existent when you choose to trade online.
  • Convenience: With online trading, you can trade from anywhere and at any time with help of internet connectivity. On the other hand, in offline trading you are required to be physically present at the brokers’ office or ask your broker on call to trade on your behalf.
  • Trading fees: Online trading yields higher profit due to remarkably low brokerage fees. On the other hand, in offline trading brokers and brokerage firm charge exorbitant fees impacting your profit earned.

Conclusion:

Even though online trading comes with risks involving lack of knowledge, it also has a barrage of advantages over offline trading. Online trading has made share trading easier, convenient, and hassle-free. Online trading enables the traders for easy trade executions. It has empowered and enabled people to consider it as an alternative source of income.

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