Trading in the stock market has rapidly evolved in the last 30 years. From earlier offline trades done via the phone, we have moved to a trading ecosystem that is completely online.
Offline trades earlier used to involve investors calling their brokers to relay an order. After the order was confirmed, the broker would go to the stock market floor to execute the order. The stock markets operated on an open floor trading system where brokers would call out their orders and the prices and transactions would get finalized. This was also called as open outcry where brokers would use hand signals and gestures to communicate with each other. Once the order was finalized along with the price, the share certificates switched hands and also owners. This transfer of share certificates was marked in ink behind the share certificate stating the change in ownership. Once this transfer was done, funds would change hands indicating that the transaction was complete. As cumbersome as this process may sound, all stock transactions the world over followed this system till the 1980s after which stock exchanges slowly began transitioning to dematerialized shares and online trading.
What is online trading?
Online share trading is nothing but transacting, i.e., purchasing and selling shares online. This is done through the broker’s online trading system. The broker’s online trading system is registered with the stock exchange’s online share trading system and can thus be used to conduct trades. Some of the instruments that can be traded using an online trading account are:
• Equity shares
• Mutual funds
• Any other listed funds
Online trading is a convenient way for a person to begin investing in the stock market. It is no longer necessary for your broker to find the right price match based on your orders. This process can completely be done online through the exchange’s price matching mechanisms. Instead of brokers competing to find buyers, the system operates through a matching mechanism where buy orders and sell orders are matched based on the price. The price of the instrument can be obtained from the listed price on the exchange. Online trading allows an investor the flexibility to choose the price at which he wants to sell the instrument and depending upon the order matching system, the order is fulfilled when it is matched. The fund transfer and securities transfer happens within the next two days of the date of transaction, thus making the entire process seamless.
With the introduction of online trading, India is looking at an increased participation from first time investors in the financial markets. Online trading in India is extremely easy and each broker provides videos, blogs and customer support to ensure their customers can trade on their platforms with ease.
Online trading allows the investor to set different types of orders such as:
• Market orders
• Stop loss orders
• Limit orders
These accounts allow the investor to access their holdings and make immediate decisions to enter an instrument or exit it.
Benefits of online trading:
The biggest advantage of online trading is the brokerage costs. Trading using an online system is cost effective not only for the broker but also for the investor. The absence of a human element allows brokers to slash their brokerage costs, which makes it very cost effective.
Online trading is very efficient. There is very little room for human error. An order once placed is almost always executed. Plus, your online trading account sends emails and messages on the confirmation and execution of orders.
3. Research reports:
Most brokers offer a wide range of market research reports and analysis about different market instruments. These research reports give you an insight into the share market. You can rely on these reports because you know that these are made by industry experts. Thus, a research report from a good broker is also bound to save you time that you would otherwise spend in doing research.
4. Scrip tracking:
It is possible for investors to track different shares that they’ve invested in. Online trading provides the investor a chance to track the movement in shares. It provides reports like price movements over a period of time, the different buy and sell orders currently placed in the market etc.
5. Watch lists:
Traders can put a few shares in their watch lists which provides an easy way for them to track the prices of the stocks that they intend to purchase..
Using an online trading account is extremely simple. It allows a person to execute a trade in a matter of a few seconds.
How to trade online?
1. Open a demat and trading account:
The first step to trading online is to open a demat and trading account. A demat account is an online repository or record for all your investments. Whenever you make a trade, the instruments such as shares are debited or credited from your demat account. A trading account is an account that enables you to buy and sell in the stock market.
2. Learn all about the different instruments:
For novice investors or traders, it is very important to understand the different instruments and learn about how the markets work. This can help place the right trades and use the stock markets to earn a return. With many resources available online, it is easy to learn all about the market. Before you invest or trade, make sure you know where you’re investing.
3. Pick your investing strategy:
This step means to decide if you’re an investor or a trader. If you’re an investor, you are investing for the medium to long term. Traders generally focus on short-term trades which can either be intraday trades or trades over a few months. Both these strategies are vastly different so it is important to know what your strategy is for each stock or mutual fund when you invest.
4. Make your trades:
The final step to online share trading is to place the order and make the trades. Depending on your investment strategy, you can purchase or sell the shares. Remember to track your shares and exit at the right moment so you can achieve your earning targets.
Online trading meaning has evolved over the years and has made investing and intraday trading affordable and accessible to a large number of people. Considering investing online? Well, why wait? Open a demat and trading account with a leading broker like IndiaNivesh Securities Ltd.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Know the difference between Demat Account and Trading Account
If one wishes to invest or trade in the stock market, there are two types of accounts that need to be opened. These accounts are demat and trading account. These two accounts are different in their uses but both are necessary for investing in the stock market. What is trading account? In earlier times, trades used to take place between brokers who acted on behalf of their clients. These trades used to happen on an open floor and brokers used to call out the prices of their orders. When two brokers found the right price for their orders, they would transfer the share certificates and the funds and the transaction would get complete. With the digital revolution and online trading, the open outcry method for transacting has become completely obsolete. With all the stock exchanges going completely online, these manual trades by brokers has been replaced by online trading through the trading account. Read more about online share trading here. The trading account is an account used to purchase and sell – 1. Equity shares2. Equity, Debt and Hybrid mutual funds3. Bonds4. Government securities5. Derivatives6. Commodities7. Currencies8. ETFs9. Other instruments traded on the stock exchange Using a trading account to buy and sell is extremely simple. Each broker offers their own trading system through their website or mobile application. These trading systems are connected to the stock market’s proprietary online systems. This offers a price matching system. An investor or trader just has to put in his order request and when the system matches the price and quantity for the order, the order gets executed. This order matching system provides seamless execution of transactions without any human intervention. The trading account is basically a link between your demat account and the exchange’s order matching system. Once the trades get cleared at the exchange, the shares or other instruments are debited and credited from the respective demat accounts. The trading account makes it extremely simple to buy and sell any investment. Since most of the investments are listed on the exchange, price discovery is easy and transparent. All you need to do is select the instrument you want to purchase and the price, and the exchange’s order matching system will ensure the transaction goes through. Brokers charge brokerage for transactions executed through the trading account. Along with that, there are exchange fees and securities transaction tax that is levied on each transaction. What is demat account? A demat account is an electronic record or repository of the financial instruments owned by an investor or trader. It shows the different investments made, the date of purchase, the price at which it was purchased and the current market price. This account allows the investor to hold shares and securities in an online form. Physical securities held by a person can be dematerialised into their electronic form and held in the demat account. One of the primary advantage of a demat account is that your shares are safe. Shares in their physical form can get damaged or lost. But shares in your demat account are safe and you don’t need to fear losing them. A demat account, like any other account, lets you easily scan all the transactions. A demat account will show the current market value of all investments held in that account as on a particular date. It also shows whether a share is partly paid up or fully paid up, thus providing clarity to the investor. However, unlike a bank account, a demat account can have zero shares or securities and still be functional. A demat account is a very convenient way to handle all investments. Unlike earlier times where all securities were in physical form, a demat account holds everything in electronic form. This makes it very convenient to handle and operate. A demat account offers all facilities like a normal bank account such as nomination facility, joint accounts, change in name and address etc. A bank account is usually linked to a demat account, which makes it easy for dividends and interest to get credited to the investor’s account directly. Read more about a Demat account here. Trading account vs demat account The difference between trading account and demat account is simple, a demat account is an online account for storing shares and securities. A trading account is an account for purchases and sales of investments. A trading account inherently has no balance. It draws from the demat account once the purchase or sale transaction has gone through from the exchange’s side. A trading account also cannot exist in isolation. It has to be linked to a demat account from which the required shares or securities can be debited or credited. A demat account can exist without having a trading account. An investor can just invest in IPOs or Mutual Funds through a broker and hold these units in his demat account. However, to sell these units, a trading account will be needed. The difference between demat and trading account is very fine. However, it is essential to know how these two accounts operate and what their nature is. This understanding will help you open these accounts and get started with your investments. How to open a trading account: 1. Select a broker of your choice like IndiaNivesh Securities Ltd. Bear in mind that each transaction requires a certain brokerage so be sure to research about the different brokerage rates for both delivery based trades and intraday trades. 2. Check the services offered by each broker. Make sure you choose a broker who provides extensive customer support, especially if you are a beginner. A good broker who provides detailed research reports could be the difference between earning profits and earning wealth. 3. Fill in the account opening form and provide the mandatory KYC details. If you have a demat account with the same broker, the KYC details may be exempted, but that depends on the broker. Some of the KYC documents required are:a. Identity proof (Aadhar Card, Passport, Voter ID, Driving License, PAN card)b. Address proof (Aadhar Card, Passport, Voter Id, Driving License, Electricity bill, Gas bill, Telephone bill, Rental agreement, Loan agreement)You will need to submit a proof of income i.e bank statements, income tax returns, Form 16 etc. 4. You will also need to submit passport size photographs. 5. Some brokers request a verification check and witnesses while filling up the account opening form6. Once the broker processes your application, you will get details about your trading account7. You also need to link your bank account to your trading account so that funds received from a sale can be credited into the bank account. 8. Once you receive these details, you can start trading. However, before you execute any trades, you must know where you are investing and what your investment strategy is. Without knowing this, it is very easy to lose money in the stock market, especially while engaging in intraday trades which is susceptible to price fluctuations. Now that you know the difference between these accounts, why not open a demat and trading account with a reputed broker like IndiaNivesh Securities Ltd.Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
5 things to keep in mind while dealing in the derivatives segment
Do you remember the first time you got on to a cycle? Your parents fitted the bike with side wheels so that you don’t fall. They also equipped you with a helmet and safety pads to avoid any injuries. Similarly, every time you start a new venture, it is best to know the precautions you should take in the currency derivatives segment in order to avoid making mistakes. This principle applies to the derivatives market too. Here are a few precautions you need to keep in mind when you deal in a derivatives segment.1) Options before futuresIn a futures contract of a derivative segment, you are obliged to follow through with a trade on a designated date and a specific price. For example, you may enter a futures contract to buy 100 shares of stock X at Rs 50 per share after three months. If the price of the share goes beyond Rs 50, you stand to benefit but if it lingers below Rs 50, you would be making a loss.But in an options contract, you can cancel the contract. In other words, you have the right to buy the stock but not the obligation. Your risk is limited to the amount of money you pay to buy the option. That’s why, if you are a novice investor, it may be better to start with options before moving on to futures trading. 2) Avoid illiquid optionsIn the derivatives segment in stock market, liquidity means that there are active buyers and sellers of a stock at all times. Generally, individual stocks are more liquid than options. This is because traders buy and sell the same stock in the market. But in case of options, there are multiple contracts available in a derivatives segment. You can choose different options with different time limits and strike prices. As a result, a few options can be illiquid as well because there may be little to no trading going on. When this happens, the spread between the bid price (how much an investor is ready to pay) and the ask price (how much an investor is ready to sell for) can be huge. When you choose an illiquid option, you may either get an unfavourable price when closing a position or may have to hold the option all the way until it expires. 3) Don’t trade without knowing the associated risksA number of factors can affect your position in the derivatives segment in market when you undertake a future or an option contract. International price movements, macro-economic factors, changes in government policies and market volatility are some of the factors that could impact price movements. Be aware of all these associated risks before you trade any contract in the market. 4) Avoid market rumoursIt is very important to take a calculated and informed decision when it comes to trading in the derivatives segment in share market. The internet is full of rumours and unsolicited tips regarding the best contracts that can help you make money. Don’t pay heed to these tips. Conduct your own research and find out the best transactions that fit into your overall investment plan. 5) Use your call options wiselyA call option offers the buyer the right to purchase a stock at a pre-determined price (also known as strike price). However, a big risk of using options is selling shares of a stock if you don’t already own it. This is known as a short call. This means you are selling a call option and you have to buy the stock at a fixed price in the future. This can pose a big problem if the stock price goes beyond the strike price. You would be forced to buy the shares at a market price that is much higher than the strike price; thus resulting in a loss. It is best to avoid short call until you gain experience in the derivatives market.To sum upThe derivatives field is large and full of potential. There are a lot of different ways you can make money in this field. However, if you are a beginner, it is important to be cautious when you invest through derivatives. The above list highlights some of the precautions you can take in order to invest successfully in futures and options. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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