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Online Trading Introduction Research Team | Posted On Friday, October 02,2009, 11:58 AM

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Online Trading Introduction



Online Trading Introduction

Online Trading involves investment activity takes place over the internet and it does not require physical presence of the broker. An investor has to register with an online trading portal for doing online trading. Investors get into an agreement with the firm to trade in different securities according to the terms and conditions given on the agreement. As the servers of the online trading portal are connected all the time to the stock exchanges and designated banks the processing is done in real time and investors can also have updates on the trading. Online trading allows you to check out the status of your orders either through e-mail or through the interface that cannot be accessed by a third party. Online trading also gives the options like to link their bank account, Demat accounts and brokerage accounts into single interface.

See Also: Forex Trading

Types of Online Brokerage Firms

There are two broad models of online brokerage firms such as;

  • Bank-backed firms

  • Entrepreneur-backed firms

Bank-backed brokerages

Bank-backed brokerages have expanded on the basis of their brand name and the trust of investors in them. The integrated 3-in-1 accounts offered by these bank backed brokerages help their parent bank by giving it accounts along with float income. Examples of Bank-backed brokerages are ICICI direct and HDFC Securities.

Entrepreneur-backed firms

Entrepreneur-backed firms expanded by offering customers a mix of online and offline accounts, higher margin finance amounts and lower brokerage rates. Though the bank based has performed better but the latter have not lagged too far behind. Examples of Entrepreneur-backed firms are Sharekhan, Indiabulls, Religare and IndiaInfoline.

How to start Online Trading?

To begin investing online you need to register as a member for an integrated 3-in-1 online trading account with any of the service providers.

The three accounts are:

  • Trading account, which enables you to transact online.

  • An Internet enabled bank account for online money transfers through Internet.

  • A demat account, where your shares will be deposited.

Factors to be considered while choosing an Online Trading account

When choosing an online trading account we have to consider the following factors

  • Credibility and credentials of the institution

  • Types of investments that you can make online such as equity shares, mutual funds, IPOs, etc

  • Quality of information and content such as research support and tools provided by the organization

  • Speed of order execution

  • Choice of products to choose from

  • Safety and security features inbuilt in the system

  • Customer care service

Besides the above, many additional features offered may be looked into, like ability to sell shares next day before receiving delivery, SMS alerts, intra day trading in equities, etc based on your investing needs.

See also: How To Open Demat Account?

Difference Between Online and Offline Trading

However, with all the convenience of online trading there are still investors who prefer the old way of trading i.e.; offline trading. Offline trading has lost some popularity but it is still the main form of trading/investing. Offline trading offers many benefits as well. Following are the major difference between Online and Offline trading.

  • Online trading consumes less time as compared to offline trading.

  • Online trading is very helpful in finding the records easily but offline trading takes more time to find out the records.

  • In online trading the investor/ trader has to learn the working of trading software but in offline trading the broker will take care of this part.

  • In the help of online trading, there is no chance of any errors while doing the trading. But in offline trading there are some errors existing like barriers of communication.

  • In online trading, we have the opportunity to know the international market rate of share very easily.

  • The major benefit in offline trading that an investor appreciates the most is that they are get support from the broker when making investment decisions.

  • There are experienced and professional brokerage companies that help to handle the investments of investors but in offline trading it is not possible.

  • In offline trading there is someone to answer any questions that may cause concerns.

Features of Online Trading

The Online Trading is having many features which make it most suitable for the investors to go for. Some of these features are as follows:

Freedom of Information

The Internet can offer a new sense of control over your financial future. The amount of investment information available online is truly amazing. It is one of the best features of being energetic investor. For the first time in history, any individual with an Internet connection can:

  • Know the price of any stock at any time

  • Review the price history of any stock in chart format

  • Follow market events in-depth

  • Receive a wealth of free commentary and analysis about stock markets and the global economy

  • Conduct extensive financial research on any company

See Also: Types of orders in stock trading

Control of your money

One of the great advantages of using an online trading account is the fact that the account belongs to you, and is under your direct control. When you want to buy or sell stock, you don’t have to call your broker on the phone and possibly argue with the broker about the order. There is no delay in executing the order.

Access to the market

At the most fundamental level, an online trading account gives you more quickness in buying and selling stocks through complicated information streams, dedicated trading platforms and sophisticated tools for accessing the markets.

Ensures the best price for investors

Every broker house aims at providing the investor with the best price available. Also due to the high level of transparency with regard to display of information relating to the specific stocks and company profiles, you will be able to get the finest quote for your orders.

Offers greater transparency

Online trading gives you greater transparency by providing you with an audit trail. This involves a complete integrated electronic chain starting from order placement, to clearing and settlement and at last ending with a credit into your depository account. All these stages are subject to inspection, thus bringing in transparency into the system.

Enables hassle free trading

Online trading integrates your bank account, trading account and Demat accounts, which leads to effortless and paperless trading for you.

Allow instant trade execution

You as an online investor will be able to execute the entire trading transaction, right from logging on to our site, to the execution and settlement of your bank account, in a very short period of time.

Provide a level of playing field

Trading online gives even the smallest retail investor access to information that earlier was available only to the big traders. This provides a level playing ground for all investors in the securities market.

Reduces the settlement risk

Online trading reduces the settlement risk for the investor, as in this case all short sell orders are squared off at the specified cut-off time and not allowed to be carried forward. In the case of a demat account your demat account is checked by us before executing your sell transaction. This reduces the settlement risk for the buyer, who is assured of the delivery of the securities and for you as a seller of the securities.

Instant order trade conformations

Every trade is confirmed immediately and you will receive an on-screen confirmation following every trade with full details for your records. This avoids expensive errors that would have been discovered when it is too late.

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