Online Trading Concepts

What is Online Trading ? 

• Online trading is a platform provided to the investors (both big and small) through the internet; to enable them to transact (that is buy and sell) the various financial instruments available with and through the stock exchange you choose to transact through. 

• The Online trading platforms are provided by some lead banks; like SBI, HDFC Bank & HDFC Securities, Kotak Mahindra Bank amongst other. And also by some brokerage houses like Sharekhan, Indiabulls etc. 

• These online trading platforms allow you to trade or transact on both the NSE and BSE. The financial instruments available to you would be stocks (cash-and-carry), futures & options, mutual funds and IPOs. All the above is done in a seamless fashion; and aside from being very efficient for the investor it also reduces the transaction cost for both the investor and the intermediary providing the service. 

How to Trade Online ? Getting Started !! 

• If you are seriously considering to invest in the stock market investment, Online Share Trading is the easiest and the safest option you have got. There are so many reputed online stock trading websites that have implemented state of the art facilities for the retail investors. You can buy and sell stocks online through these websites without any hassles and there are so many other benefits as well. Apart from the fact that online trading is hassle free, the biggest advantage of the online trading account is that they charge considerably lower brokerage for stock trading in comparison with the traditional stock brokers

• To begin investing online, we 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:

1. Trading account, which enables you to transact online.
2. An Internet enabled bank account for online money transfers through Internet.
3. A Demat account, where your shares will be deposited.

• In India most of the online trading portals lets you trade in both the major stock exchanges in India – The BSE and NSE. Through online trading account you can do delivery based trading, margin trading as well as derivative trading. Apart from these basic stock trading procedures most of the online stock trading websites also lets you invest in the IPO(Initial Public Offer) and mutual funds as well. So, no more filling up the lengthy forms and no more signing cheques for buying the IPO or investing in the mutual funds, now you can do that with a click of the mouse from your online trading account.

Traditional Trading vs Online Trading

In traditional trading, all your activities are carried out with the aid of brokers where they help you in the entire process while spending a lot of time. and money as well. Whereas in Online Trading, the stock brokers have a platform in the form of special websites created for trading of stocks. These platforms are instrumental in providing extra information and keep track of all the trading details through your online trading account. It helps to keep us abreast with - 

• Market Data
• Charts
• News
• Alerts

There are various levels provided for the market data. Every level of market data is required by the day traders who make their decisions all by themselves. Traders have the liberty to trade in more that one product, ECN (Electronic Communication Network) or one market with just one account and software. There are various advantages and disadvantages associated with the Online Trading which are outlined below - 

Advantages of Online Trading 

• It provides a wealth of information, analysis and tools that enable you to take more informed decisions, virtually no paperwork involved as all transaction records are online and statements available in digital form, invest anytime and from anywhere at your time and convenience.

• It allows you to trade across various segments like Equity Shares, Mutual Funds and IPOs, amongst others. You can also get up-to-date information and analysis in an investor friendly format, from some of the best information providers in their respective fields. 

• Online Stock trading, unlike every other business, is an excellent way to make quick money. Investors see very quick turnarounds on their online investments.  The well-educated and experienced investor can make money in just the time it takes them to click through a transaction because online investing has virtually eliminated the lag time between purchases and proof of the stock in a portfolio. Additionally, investors don’t have to worry about or budget for advertising or tempting customers!

• There is no Investment limits in Online Trading. Typical brokers typically impose limits on investors, requiring them to spend a certain amount of money.  But online brokering is steered by the client, and they can spend as much or as little as they like.  Brokers also may impose a minimum trade requirement, but the online investor can decide to trade only one stock at a time if they decide that is their ideal business model.

• Lower Brokerage Fees. Fees can be even more lower for frequent Trader. Online trading favors active traders, who trade in bulk but demand lesser commission.

• Good research tools and News feeds on each stock, which you can delve deeper into in your own time. A conventional offline broker may not always be able or willing to offer you all of these. 

Disadvantages of Online Trading

• There is reduction of professional support thus making it vulnerable to risks. Online Trading reduces the amount of professional support you’re receive when making buy or sell decisions. 

• There is no relationship that of a mentor between a professional broker and an online trading account holder, thus leaving the investor on his own to make choices of the right shares. Users who are not familiar with the ins and outs of the basics of brokerage software can make mistakes which can prove to be a costly affair.

• There is probability of trading loss in case of technical or platforms malfunctions. Sometimes, Internet connection can be a problem or the website itself loads very slow.

• Many products to choose from (there are 1000's of stocks) which is often overwhelming to new traders

Common Mistakes in Online Trading 

• Avoid the mistake of placing Market Orders in Volatile Market as you may get exposed to the sudden price swings

• Avoid the mistake of placing the wrong type of order in error. There are many types of brokerage orders and they can be confusing, but it is important to understand the difference when placing your own trades to avoid unintentional errors.

• If you bought the wrong stock. Don't sell it just yet. Quickly make an assessment to determine if the trade is going for or against you. First, determine the spread and possible exit points. Check the Prints and see if you are getting appropriate signals. Regardless, if it is going up, let it run, offer into the momentum and take a quick profit. Consider it a gift. If it is not going your way, exit quickly. Do not waste time rationalizing the trade.

• The computer system goes down. No system is immune to occasional bog-downs. Whether the source of the problem is with the brokerage, the data source or with the entire exchange itself, avoid trading until it is fixed. Know what open positions you have and write them on a piece of paper. If you wish to exit that position, write down a specific buy or sell order (stock symbol, market or limit order, buy or sell, price and share size) and hand it to the licensed broker in the office if you are trading in an office, or phone in the order execution.

• If you are in a situation where you cannot concentrate. it'll be wise enough not to trade at that point of time to avoid unavoidable mistakes.

Thank You !