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What is Online Trading?

Online trading has made buying and selling of shares 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 facilitates buying & selling of financial instruments like Equities, Bonds, NCDs, Derivatives, Stocks and ETFs through an online trading platform.

Before digitization, when an investor wished to buy shares, he used to call his broker and request to buy stocks at a specified amount. 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.

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How to Trade Online?

  • The very first step to start trading online is to apply for a Demat and trading account with a Depository Participant and complete all the necessary documentation processes. It is important to choose a broker who is a registered member of all the stock exchanges and has been certified by Securities and Exchange Board of India (SEBI) as well.
  • Prior to starting online trading, it's essential that you have sufficient knowledge of how the stock market functions. There are many courses that teach the basics of online trading. Other than that, you should also keep a tab on the financial news, websites and hear podcasts to keep yourself updated with the financial markets.
  • Chalking out a plan & devising a strategy also plays a big role. Before you start to invest with real money, it’s advisable that you start practicing with a demo trading account. This will enable you to familiarize yourself with the price dynamics and develop a trading strategy you wish to adopt.

Think through your investing strategies. Plan in advance the amount you wish to invest in a particular company.

Stock trading is a long-term investment therefore ensure you have all your bases covered in order to become a successful investor!

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.

Online Trading vs Offline 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.

Things to Remember Before You Start Online Trading

  • It's compulsory to have a Demat and trading account.
  • Select a broker that will meet your requirements.
  • Gather adequate knowledge and analyze before taking trades

Choose the Right Trading Platforms for Online Trading in India

Be watchful while selecting a trading platform for online trading. There are many in the market but to get the most out of it, see to it that: -

  • a) It has a simple and easy-to-use interface.
  • b) The brokerage fee is low.
  • c) Select an online platform that gives you access to all kinds of financial instruments for trading. Example: - Bajaj Financial Securities Limited offers you Margin Trade Financing, which empowers you to buy up to 4 times more than available cash.

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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Frequently Asked Questions (FAQs)

Yes. Trading of securities in India is highly regulated by the Securities and Exchange Board of India (SEBI), which makes it safe and secure. That said, although online trading may be safe, it is important to take certain safety precautions as an investor.

The measures include choosing reputed stock brokers with robust, secure and encrypted trading platforms. Also, consider securing your trading account with a strong password and enable two-factor authentication (2fA) to prevent unauthorised access.

Online trading has made the financial markets more accessible and convenient for retail investors. It has brought about more transparency in pricing and provided more control over trading and investment decisions. Thanks to online trading, the speed, efficiency and volume of trades being executed has gone up tremendously. It is safe to say that the introduction of online trading has completely revolutionised the financial markets.

Yes. Depending on the stock broker with whom you’re associated, you might have to deal with a range of fees and charges. This includes brokerage, Securities Transaction Tax (STT), exchange fees, SEBI turnover fees and GST among others.

Yes. Most stock broking platforms in India now offer dedicated smartphone applications that allow you to trade on mobile devices. Furthermore, almost all trading platforms can be accessed via a mobile device’s web browser.

If you encounter a technical issue when trading, the first thing you need to do is remain calm and patient. Make a detailed note of the technical issue you encounter; this might help in the quick resolution of the issue.

Then, check if the trades you placed, if any, have been executed or not. If you need to place any trades urgently, you may contact the customer support helpline of your stock broker and request them to place the trade over the call.

If the technical issue is from the stock broker’s end, raise the issue with customer support. If the issue is from the stock exchange’s end, trades will generally be temporarily suspended until the problem is resolved.

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