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What is Online Trading – Meaning, Tips & Benefits

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
• Bonds
• Derivatives
• Commodities
• Currencies
• 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:

1. Cost:
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.

2. Efficiency:
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..

6. Speed:
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.

Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.