What is Online Trading?

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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.

Types of Online Trading

Online trading in the Indian stock market includes various types that cater to different investment strategies. Stock trading involves buying and selling shares of companies listed on exchanges like the NSE and BSE. Forex trading deals with currency pairs, enabling traders to speculate on exchange rate movements, although this is less common among retail investors in India. Commodity trading involves trading physical goods like gold, silver, oil, and agricultural products on platforms like MCX and NCDEX. Options and futures trading allow investors to trade contracts based on the future price movements of underlying assets such as stocks or indices. Each type offers unique opportunities and risks suitable for different trading preferences.

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 stockbrokers/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 a 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.

Pros and Cons of Online Trading

Pros

Cons

Convenience: Trade from anywhere, anytime

Requires constant monitoring and time

Lower costs: Reduced brokerage fees

High risk due to market volatility

Access to real-time market data

Potential for technical glitches

Wide range of investment options

Emotional trading can lead to losses

Advanced trading tools and analytics

Requires a good understanding of markets

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 Broking offers you Margin Trade Financing, which empowers you to buy up to 4 times more than available cash.

The Future of Online Trading

The future of online trading in India looks promising, driven by advancements in technology and increased accessibility. Artificial intelligence (AI) and machine learning are set to revolutionize trading by providing sophisticated analytics and predictive tools. The implementation of blockchain technology offers enhanced security and transparency for transactions. The rise of mobile trading apps makes it easier for individuals to trade on the go. Additionally, social trading platforms enable traders to share strategies and insights, fostering a collaborative trading environment. As these technologies evolve, online trading is expected to become more efficient, secure, and inclusive, attracting a broader range of investors.

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FAQs

Can I open multiple demat accounts?

Answer Field

Yes, you can open multiple demat accounts but only under the below conditions:

  • You can open only one demat account per DP using the same PAN card.
  • You can open multiple demat accounts with different DPs using the same PAN card.

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