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A study on Online

Stock Trading in India

A study on Online Stock trading
in India


Padmanabhan K

REGN. NO.: A9C7510365



A project report submitted in partial fulfillment of the requirement

for the Degree of Master of Business Administration (MBA)
In the Madurai Kamaraj University

Batch: 2009-11


This is to certify that the project work entitled “A study on Online

Stock Trading in India” is a bonafide project work carried out by

Padmanabhan K Enrollment No.: A9C7510365 in partial

fulfillment for the award of degree of MBA of Madurai Kamaraj

University under my guidance. This project work is original one

and not submitted earlier for the award of any degree / diploma


Student’s Signature Signature of the



Guide’s Bio-Data

Name: Rakhi Mittal

Father Name: Dr.S.C.Mittal

Qualification: B.E.,M.Tech

Date of birth: 11 Aug’78

Communication Address: 1547, 10th Main, I Cross, HAL III

Stage, Kodihalli, Bangalore-560008

Nationality: Indian

Academic Details

Course Name of the College/University Duration

M.Tech (IT) Punjabi University, Patiala 2 Years
B.E.(CS&E) Karnataka University, Dharwad 4 Years

Job Experience

Company Year Designation

New Horizon College Of Engg 2008 – till Asstt Professor
Krishna Institute of Engg & 2000 – 2008 Asstt Professor

I declare that the above details are true to the best of knowledge.



I Padmanabhan K hereby declare that the project “A study on

Online Stock Trading in India” submitted to the MADURAI

KAMARAJ UNIVERSITY in the partial fulfillment of requirement

for the award of the degree of MASTER OF BUSSINESS

ADMINISTRATION is a record of original project done by me

under the supervision of Ms Rakhi Mittal.

Enrolment No: A9C7510365




At the outset, I wish to express my sincere thanks

to the almighty for showering his blessings on me to complete this
project. Success in not a destination but a journey- it is often said.
I realized it even better during course of creating this project. With
this project I hope to develop a futuristic view of industry’s
progress. I may not have come this far without help, guidance and
support of certain people who acted as guide, friend and
torchbearers along the way.
I feel it my profound privilege to express my most sincere
gratitude and indebtedness to Mrs. Chandra Iyer and Mr.Ryan
Colaco, Sr Manager, Axis Bank who had introduced me to world of
online trading 6 years back by gifting me 100 shares of axis bank
as result I had to open up my 1st demat account with icicidirect.
Today I along with my wife and friends are involved in intra-day
trading using tips from various trading agencies.
Last but not least I like to thank my parents, my beloved
brother, and friends & colleagues for their moral support for
completing this project work successfully



Online services offer customers a splendid display of benefits

such as enhanced control, ease of use and reduced transaction
charges. Consequently, online services have grown rapidly and
have emerged as a leading edge of service industry. Providing
online services in developed stock exchange such as Japan,
USA, France, Singapore, UK and India has lead market to
become more competitive. Therefore, brokerages compete in
offering superior service quality.

To understand the online trading we need to know the history of

stock trading in India and total exchange in India such has NSE and
BSE. Stock markets refer to a market place where investors can
buy and sell stocks. The price at which each buying and selling
transaction takes is determined by the market forces (i.e. demand
and supply for a particular stock).

Let us take an example for a better understanding of how market

forces determine stock prices. ABC Co. Ltd. enjoys high investor
confidence and there is an anticipation of an upward movement in
its stock price. More and more people would want to buy this stock
(i.e. high demand) and very few people will want to sell this stock
at current market price (i.e. less supply). Therefore, buyers will
have to bid a higher price for this stock to match the ask price from
the seller which will increase the stock price of ABC Co. Ltd. On the
contrary, if there are more sellers than buyers (i.e. high supply and
low demand) for the stock of ABC Co. Ltd. in the market, its price
will fall down.

In earlier times, buyers and sellers used to assemble at stock

exchanges to make a transaction but now with the dawn of IT,
most of the operations are done electronically and the stock
markets have become almost paperless. Now investors dont have
to gather at the Exchanges, and can trade freely from their home
or office over the phone or through Internet.

History of the Indian Stock Market - The Origin

One of the oldest stock markets in Asia, the Indian Stock Markets
have a 200 years old history.
East India Company was the dominant institution and
18th Century: by end of the century, busuness in its loan securities
gained full momentum
Business on corporate stocks and shares in Bank and
1830's: Cotton presses started in Bombay. Trading list by the
end of 1839 got broader
Recognition from banks and merchants to about half
a dozen brokers
Rapid development of commercial enterprise saw
1850's: brokerage business attracting more people into the
1860's: The number of brokers increased to 60
The American Civil War broke out which caused a
stoppage of cotton supply from United States of
America; marking the beginning of the "Share Mania"
in India
1862-63: The number of brokers increased to about 200 to 250
A disastrous slump began at the end of the American
Civil War (as an example, Bank of Bombay Share
which had touched Rs. 2850 could only be sold at Rs.

Pre-Independance Scenario - Establishment of Different

Stock Exchanges

With the rapidly developing share trading business,

brokers used to gather at a street (now well known as
"Dalal Street") for the purpose of transacting
"The Native Share and Stock Brokers' Association"
1875: (also known as "The Bombay Stock Exchange") was
established in Bombay
Development of cotton mills industry and set up of
many others
Establishment of "The Ahmedabad Share and Stock
Brokers' Association"

Sharp increase in share prices of jute industries in
1880 - 90's:
1870’s was followed by a boom in tea stocks and coal
"The Calcutta Stock Exchange Association" was
Madras witnessed boom and business at "The Madras
Stock Exchange" was transacted with 100 brokers.
When recession followed, number of brokers came
down to 3 and the Exchange was closed down
1934: Establishment of the Lahore Stock Exchange
Merger of the Lahore Stock Exchange with the Punjab
1936: Stock Exchange

Re-organisation and set up of the Madras Stock

Exchange Limited (Pvt.) Limited led by improvement
1937: in stock market activities in South India with
establishment of new textile mills and plantation
Uttar Pradesh Stock Exchange Limited and Nagpur
Stock Exchange Limited was established
Establishment of "The Hyderabad Stock Exchange
"Delhi Stock and Share Brokers' Association Limited"
and "The Delhi Stocks and Shares Exchange Limited"
were established and later on merged into "The Delhi
Stock Exchange Association Limited"

Post Independance Scenario

The depression witnessed after the Independance led to closure of

a lot of exchanges in the country. Lahore Estock Exchange was
closed down after the partition of India, and later on merged with
the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was
registered in 1957 and got recognition only by 1963. Most of the
other Exchanges were in a miserable state till 1957 when they
applied for recognition under Securities Contracts (Regulations)
Act, 1956. The Exchanges that were recognized under the Act
1. Bombay
2. Calcutta
3. Madras

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4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore

Many more stock exchanges were established during 1980's,


• Cochin Stock Exchange (1980)

• Uttar Pradesh Stock Exchange Association Limited (at Kanpur,
• Pune Stock Exchange Limited (1982)
• Ludhiana Stock Exchange Association Limited (1983)
• Gauhati Stock Exchange Limited (1984)
• Kanara Stock Exchange Limited (at Mangalore, 1985)
• Magadh Stock Exchange Association (at Patna, 1986)
• Jaipur Stock Exchange Limited (1989)
• Bhubaneswar Stock Exchange Association Limited (1989)
• Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989)
• Vadodara Stock Exchange Limited (at Baroda, 1990)
• Coimbatore Stock Exchange
• Meerut Stock Exchange

At present, there are twenty one recognized stock exchanges in

India which does not include the Over The Counter Exchange of
India Limited (OTCEI) and the National Stock Exchange of India
Limited (NSEIL).

Government policies during 1980's also played a vital role in the

development of the Indian Stock Markets. There was a sharp
increase in number of Exchanges, listed companies as well as their

Types of Transactions

The flowchart below describes the types of transactions that can be

carried out on the Indian stock exchanges:

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Indian stock exchange allows a member broker to perform
following activities:
• Act as an agent,
• Buy and sell securities for his clients and charge commission
for the same,
• Act as a trader or dealer as a principal,
• Buy and sell securities on his own account and risk.

Over The Counter Exchange of India (OTCEI)

Traditionally, trading in Stock Exchanges in India followed a

conventional style where people used to gather at the Exchange
and bids and offers were made by open outcry.

This age-old trading mechanism in the Indian stock markets used

to create much functional inefficiency. Lack of liquidity and
transparency, long settlement periods and benami transactions are
a few examples that adversely affected investors. In order to
overcome these inefficiencies, OTCEI was incorporated in 1990
under the Companies Act 1956. OTCEI is the first screen based
nationwide stock exchange in India created by Unit Trust of India,
Industrial Credit and Investment Corporation of India, Industrial
Development Bank of India, SBI Capital Markets, Industrial Finance
Corporation of India, General Insurance Corporation and its
subsidiaries and CanBank Financial Services.

Trading Pattern of the Indian Stock Market

Indian Stock Exchanges allow trading of securities of only those

public limited companies that are listed on the Exchange(s). They
are divided into two categories:

National Stock Exchange

In order to lift the Indian stock market trading system on par with
the international standards. On the basis of the recommendations
of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India,

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Industrial Credit and Investment Corporation of India, Industrial
Finance Corporation of India, all Insurance Corporations, selected
commercial banks and others.

NSE provides exposure to investors in two types of markets,

1. Wholesale debt market
2. Capital market

Wholesale Debt Market - Similar to money market operations, debt

market operations involve institutional investors and corporate
bodies entering into transactions of high value in financial
instruments like treasury bills, government securities, commercial
papers etc.

Trading at NSE

• Fully automated screen-based trading mechanism

• Strictly follows the principle of an order-driven market
• Trading members are linked through a communication
• This network allows them to execute trade from their offices
• The prices at which the buyer and seller are willing to
transact will appear on the screen
• When the prices match the transaction will be completed
• A confirmation slip will be printed at the office of the trading
• Advantages of trading at NSE
• Integrated network for trading in stock market of India
• Fully automated screen based system that provides higher
degree of transparency
• Investors can transact from any part of the country at
uniform prices
• Greater functional efficiency supported by totally
computerized network

Bombay Stock Exchange

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Bombay Stock Exchange is the oldest stock exchange in Asia What
is now popularly known as the BSE was established as "The Native
Share & Stock Brokers' Association" in 1875.

Over the past 135 years, BSE has facilitated the growth of the
Indian corporate sector by providing it with an efficient capital
raising platform.

Today, BSE is the world's number 1 exchange in the world in terms

of the number of listed companies (over 4900). It is the world's 5th
most active in terms of number of transactions handled through its
electronic trading system. And it is in the top ten of global
exchanges in terms of the market capitalization of its listed
companies (as of December 31, 2009). The companies listed on
BSE command a total market capitalization of USD Trillion 1.28 as
of Feb, 2010.

BSE is the first exchange in India and the second in the world to
obtain an ISO 9001:2000 certifications. It is also the first Exchange
in the country and second in the world to receive Information
Security Management System Standard BS 7799-2-2002
certification for its BSE On-Line trading System (BOLT). Presently,
we are ISO 27001:2005 certified, which is a ISO version of BS
7799 for Information Security.

The BSE Index, SENSEX, is India's first and most popular Stock
Market benchmark index. Exchange traded funds (ETF) on SENSEX,
are listed on BSE and in Hong Kong. Futures and options on the
index are also traded at BSE.

Finally, the findings of this research are mostly useful to those

(common man, stock market's officials, brokers, traders, etc.) who
intend to expand the Indian stock exchange. The results indicate
how Indian traders' rank service quality factors and if online
trading system could enhance their satisfaction level or not? Also
factors which lead to dissatisfaction were collected and proper
recommendations were given. In next step a basic online trading
model were offered which propose to replace with current

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system. Lastly, roles of each involved party were identified in
proposed online system.

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As per the title suggest the project report has been prepared as a study on
online stock trading in India using the current technology which has a great
influence in growth of primitive stock trading which was earlier part of few
specialized stock brokers has been thrown open to common people in India
and across the globe. Online trading was initiated by NSE in India and soon
after the other exchanges also followed it.

There was a major boom in yr. 2000 when lots of online trading companies
came with a bang but only few were survived because of lack of computer
knowledge and low internet penetration. There are two types of online trading
companies one is the banking online trading companies and the other is non-
banking trading. A few examples of banking online trading companies are
HDFC securities, ICICI, UTI securities etc.

On the other hand non -banking trading companies are ICICDirect,

RelianceMoney, , Indiabulls, Religare securities Angel Broking, Reliance Money
etc. A study was undertaken to determine the growth of various online trading
companies in India in terms of trade done by them through online and
services provided by them.

Major findings indicates that out of a survey of 75+ respondents (Friends &
colleagues) it was seen that most of the investors prefer online trading
because of few major factors such as time saving convenience, protection
through Freudian brokers etc. although during my research project I’ve seen
that most of the respondents feel online trading, a secure way of investing
into stock market still a few of them feel that it’s unsafe and a bit complicated
but they posses information about online trading. Today the online trading
companies having cut-throat competition in our offering whose brokerage
discounts lower margin money and zero balance accounts. Due to the rising
education awareness and use of internet there is a huge potential for online
trading in future and companies must come up with innovative offerings to
capture the untapped market.

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To determine the “A study on Online Stock Trading in India”


The above title is self explanatory. This study mainly deals with development
and usage of online trading in India since its inception in the year 2000. Due
to subprime mortgage crisis in year 2009-10 BSE, NASDAQ and S&P 500,
two major stock exchange of the world entered into the bearish market. It
also affected the stock market all over the world including India. It is the
challenge for the growth and development of trading in India that’s why I
choose that particular topic for the study.


Since the year 2000 a big boom has been witnessed in the Indian Stock
Market when the market showed the coming up of Online Trading System.
Many online stock trading companies came but initially due to lack of online
trading some companies vanished and some survived. The companies which
survived are getting the handsome returns also attracting the foreign
Investment Companies. Nowadays this sector is facing cut-throat
competition and also provides huge growth prospects. The study then goes
to evaluate and analyze the findings so as to present a clear picture of the
trends in the online trading sector.


The objectives of my research project is –

1. To determine the growth and future of online trading industry in India

2. To understand the customer perception of online trading.

3. To see the type of technology used by stock exchanges and by the

Indian customer in online trading

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4. To determine what type of products the customers deal while doing the
online trading.

5. To understand the presence of major online traders in the Indian

market and looking about the features provided by them

6. To find out the important factor which do mostly affect to the customer

7. To develop a good strategy and process that improves the business of

the organization

8. To be able to compare and analyze the various Financial Products.

9. Business development and revenue generation.


The research methodology for the project completed in two phases:

• First Phase is the collection of Secondary Data:

This involves the collection of Secondary data using internet and internal
sources for comparison of Online trading account of other Broking houses in
the market like ICICI Direct, MOTILAL Oswal, Religare and Reliance Money
etc. This also involves talking to their executives regarding various features
provided to the customer along with their Brokerage structure.

• Second Phase is Collection of Primary Data and Analysis:

After collecting the Secondary data the next phase will be collection of primary
data using Questionnaires. The questionnaire will be filled by around 75
people who will be mainly from Bangalore/Hyderabad/Mumbai region. The
sample will consist of people who are employed or work as free lancers
dealing in investment options to know their financial requirements. Based on
these requirements different investments will be informed to them for further


3.6.1 Non Probability

The non –probability respondents have been researched by selecting the
persons who do the stock trading. Those persons who do not trade in stocks
have not been interviewed.

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3.6.2 Exploratory and Descriptive Research
The research is primarily both exploratory and descriptive in nature. The
sources of information are both primary and secondary. The secondary data
has been taken by referring to various magazines, newspapers, internal
sources and internet to get the figures required for the research purposes. The
objective of the exploratory research is to gain insights and ideas. The
objective of the descriptive research study is typically concerned with
determining the frequency with which something occurs. A well structured
questionnaire was prepared for the primary research and personal interviews
were conducted to collect the responses of the target population.


3.7.1 Sampling Technique

Initially, a rough draft was prepared a pilot study was done to check the
accuracy of the Questionnaire and certain changes were done to prepare the
final questionnaire to make it more judgmental.

3.7.2 Sampling Unit

The respondents who were asked to fill out the. These respondents comprise
of the persons dealing in stock trading. The people have been interviewed in
the open market, in front of the companies, telephonic interviews and through
other sources also.

3.7.3 Sampling Size

The sample size was restricted to only 75 respondents.

3.7.4 Sampling Area

The area of the research was Bangalore/Hyderabad/Mumbai.


The various limitations of the study are:
1. People were not willing to answer the entire questionnaire due to the
less time available to them.

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2. Some respondents might be hesitant to divulge personal and financial
information which can affect the validity of all responses.
3. There is lack of awareness among people about investing in stock
market. So the people who are aware of such things were found in
specific areas for survey purposes.
4. Most people are comfortable with traditional system in small towns and
like to trade from their respective brokers, hence not providing a true
opinion of theirs.
5. Some of the respondents who did not do online trading were able to
respond to only few questions.
6. The survey was done in the some major metro cities and may not truly
express the opinion of whole country.

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This chapter brings up relevant literature required to find answers and

connect to our research questions. First, vital literature about online trading
along with key concepts of different terms, drivers of growth and the
necessity of its existence will be presented so that it becomes easier to
understand the research area.

Electronic commerce, commonly known as e-commerce or eCommerce, or e-
business consists of the buying and selling of products or services over
electronic systems such as the Internet and other computer networks. The
amount of trade conducted electronically has grown extraordinarily with
widespread Internet usage. The use of commerce is conducted in this way,
spurring and drawing on innovations in electronic funds transfer, supply chain
management, Internet marketing, online transaction processing, electronic
data interchange (EDI), inventory management systems, and automated data
collection systems. Modern electronic commerce typically uses the World
Wide Web at least at some point in the transaction's lifecycle, although it can
encompass a wider range of technologies such as e-mail as well.

4.1.1 Background
This section is intended to offer sufficient background of the research area
that covers the general idea of e-commerce and the position of online
trading as one of the major element of each economy. E-commerce and the Position of Online Trading

In business today electronic commerce (e-commerce) is one of the
common topics being discussed. Kalakota and Whinston (1996) defined e-
commerce as "The buying and selling of information, products and
services via computer networks, the computer networks primarily
being the Internet. It is streamlining business processes, restructuring
whole industries and re-shaping of customer and supplier relationship
(Daniel et al., 2002). In order to perform one or more of the business
functions Internet based e-commerce systems use World Wide Web based

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application solutions. In fact electronic commerce is a way of conducting,
managing and running business transaction using computer and Internet.
Based on the significant power of World Wide Web and global e-
commerce, the numbers of internet users' have been rapidly increasing
and have widely spread into all aspects of life. It has opened up
tremendous business opportunities for its users. The most common use of
e-commerce is to replace or enlighten conventional transaction methods
and in the last few years a substantial growth of internet-based services
being experienced. According to an Angusreid group study (2008) of
Internet users in 44 countries nearly 220 million of the estimated 500
million worldwide Internet users have already made a purchase or
transactions online. Stock exchange was influenced by Internet
technology as well as other business sectors. Stock exchange as a
critical pillar of each economy, acts exactly the same as a thermometer of
economical condition of the country. The volume of stock transactions, the
index growth and tendency of individuals and legal entities crystallized if
the economy of a country is flourishing or on the other hand continue
recession conditions. Therefore, providing a flow trading process and
accelerating the transaction settlement can create more motivation for
traders to join stock trading exchange likewise cooperate and invest in
companies and finally, in this manner, internet creates an opportunity of
reaching these goals. Online Trading and Customer Satisfaction

Applying conventional trading systems in India leads to many
aspects of problems like manipulation, lot's of paperwork, insiders' illegal
activities and etc. These problems cause traders' dissatisfaction and
the lack of technological foundations creates an inefficient market.
Stock market is growing up and the number of traders rapidly increasing,
therefore following conventional method in handling and controlling the
market, may in turn directs us to lose the potential power of this market in
order to integrate the traders' small capital. With no doubt, traders leave
the market where there is no appropriate surveillance over the activities
because the unsatisfied customer will not take all the risk in stock market.
So it is clear that if stock market as a supervision organization could not

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offer suitable services to the traders, market expansion is meaningless. In
other words, it seems that providing and recovering service quality in
this market may enhance traders' satisfaction and encourage investing
more and more. But how the traders' satisfaction can be measured and
how can be proved that, there is a dramatically gap between what traders
looking for and what traders receive as a service? Different Models for Measuring Service Quality

According to literature, service quality dimensions identified by different
authors. These dimensions are measured in order to find out the degree of
satisfaction in current market and find the relationship between service
qualities dimensions which online trading can provide and traders'

Leading researcher (Berry) identified ten determinant of service quality.

There are: reliability, responsiveness, competence, access, courtesy,
communication, credibility, security, understanding and tangibles.

Reliability involves consistency of performance and dependability. It

means that the firm performs the service right the first time. It also means
the firm honors its promises. Especially it involves: accuracy in billing,
keeping records correctly, and performing service at the designated time.
Responsiveness concerns the willingness or readiness to provide service. It
involves timeliness of services that means – mailing a transaction slip
immediately, calling the customer back quickly and giving prompt service.
Competence means possession of the required skills and knowledge
to perform the services. It involves: knowledge and skill of the
contact personnel, knowledge and skill of operational support
personnel, research capability of the organization. Access involves
approach, ability and ease of contact. It means: the service is easily
accessible, waiting time to receive service is not extensive, hours of
operation are convenient and location of service facility is convenient.
Courtesy involves politeness, respect, consideration, and friendliness of
contact personnel. It includes – consideration for the customer's property,
clean and neat appearance of public contact personnel.

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Communication means keeping customers informed in language they can
understand. It also means listening to customers. It may mean that the
company has to adjust its language for different customers- increasing the
level of sophistication with well- educated customer and speaking simple
and plainly with a novice. It involves: explaining the service itself,
explaining how much the service will cost and assuring the customer that a
problem will be handled. Credibility involves trusts worthiness, believability,
honesty; it involves having the customer's best interests at heart. Security
is the freedom from danger, risk or doubt. It involves: physical safety,
financial security and confidentiality. Understanding the customer means
making the effort to understand what the customer's needs are. It includes:
learning the customer’s specific requirements, providing individualized
attention and recognizing the regular custom. Tangibles includes the
physical evidence of the service: physical facilities, appearance of
personnel, tools or equipment used to provide the service, physical
representations of the service, such as a plastic credit card or bank
statement, other customers in the service facilities

A number of research workers and others have tried to identify key

determinants by which a customer assesses service quality and
consequently result in satisfaction or not.

Leading researcher (Parshuraman) came up with five determinants that can

be used to measure service quality. This scale named SERVQUAL and has
been developed for the service sector. It has five generic dimensions or
factors and is stated as follows:
1. Tangibles: Physical facilities, equipment and appearance of personnel.
2. Reliability: Ability to perform the promised service dependably and
3. Responsiveness: Willingness to help customers and provide prompt
4. Assurance (including competence, courtesy, credibility and security):
Knowledge and courtesy of employees and their ability to inspire trust and
5. Empathy (including access, communication, understanding the
customer): Caring and individualized attention that the firm provides its

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Leading researcher (Gronroos) postulated six criteria of perceived good

service quality; Professionalism and skills; attitudes and behaviors;
accessibility and flexibility; reliability and trustworthiness; recovery;
reputation and credibility.
Leading researcher (Johnson) provides 18 service quality dimensions –
Attentiveness/helpfulness, responsiveness, Care, Availability, Reliability,
Integrity, Friendliness, Courtesy, Communication, Competence,
Functionality, Commitment, Access, Flexibility, Aesthetics,
Cleanness/tidiness, Comfort and Security.

4.1.2 Motivation
As it was mentioned, stock exchange plays a critical role in each country's
economy and understanding of traders’ needs, as a main customer of this
market, becomes an important factor. In this situation, satisfaction has
great effect on traders retention and more important attract potential
traders and as a result reach to more efficient market and the possibility
of market expansion will be feasible. Good customer service quality is
the main factor in creating satisfaction and enhances the level of traders'
satisfaction. So it is desirable for responsible in stock exchange to uncover
what attributes traders utilized in their assessment of service quality and
satisfaction and which attributes are more important.

Recently many stock exchanges all over the world have used the Internet as
a new tool to offer their customers a variety of services 24 hours a day and
offer better services to traders. But these steps are not passed in India yet
and traders suffer from insufficient services. Conventional trading system,
poor surveillance power, limit services and so many others short comings,
create a situation that increase the risk of investing in this market, create a
suitable situation for price manipulation, wash sales and so many other
frauds which in return lead to traders dissatisfaction and inefficiency of
Indian stock exchange.


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Countries all over the world have invested heavily to leverage the Internet
and transform their conventional businesses into e-businesses. E-businesses
are defined as the use of Internet based information and communication
technologies (ICT) by organizations to conduct transactions, share
information and maintain relationships. New technologies such as World Wide
Web have made a profound on all business around the world. E-business
enables organizations to reduce cost, increase demand and create new
business models.

E-commerce is a subset of e-business and defined as buying and selling of

goods and services on the Internet, especially the World Wide Web In fact, any commerce carried out using
computer networks are called electronic commerce and has created an
opportunity to do business and handle transactions electronically and stock
trading domain makes the most of its chance all over the world. As, the time
factor play a critical role in this business, internet quicken and streamline the
trading process. Creating more convenience, saving time and money and
paperless process are the most significant goals of the online trading.

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4.2.1 Definitions of Online Trading

The Internet revolution has been changing the fundamentals of the society. It
changes the shape of communication and also trading process. It shifts closer
and closer to vital sources of information and new trading environment by the
name of "online trading". It provides users with means to directly
interact with service- oriented computer systems tailored to their specific
needs; therefore, they can serve themselves better by making their own
decisions. There are lots of definitions for online trading. Hereby, four main
definitions are mentioned:

Referring to two websites which are active in trading fields

( and they define online trading in
this manner: The increasingly popular activity of buying and selling securities
over the internet, or to a lesser extent, through a broker's proprietary
software. Likewise Fan et al. define it in this way: The 'online trading' is
defined as a process of trading financial products especially stocks over the
Internet, and online stock trading site is a web site that helps traders or
customers to buy and sell the financial products over the Internet.

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Also online trading is described as service offered on the internet for purchase
and sale of shares. In the real world you place orders with your stockbroker.
In online trading, you will access a stockbroker's website through your
internet-enabled PC and place orders through the broker’s internet-based
trading engine. These orders are routed to the Stock Exchange without
manual intervention and executed thereon in a matter of a few seconds.

Furthermore there is another definition for online trading which defines it in

this way: Online trading is placing an order for a trade using the internet.
Online trading is not a strategy, but a means to enter a trade. Online trading
can be used to enter a short trade or day trade, or a longer-term position in a
stock, bond, commodity or option. (

Each of these definitions describe online trading from somehow different

aspect, but something is common and that the services which have
provided to traders. They divided into three categories

• Full-service
• Discount
• Online

Investors who do not have time to research investments on their own will
likely rely on a full-service broker to help them construct an investment
portfolio, manage their investments, or make recommendations regarding
which investments to buy. Full-service brokers have access to a wide range of
reports and analyses from the company's large staff of financial analysts.
These analysts research companies and recommend investments to people
with different financial needs. Persons who prefer to select their own
investments generally use a discount or online broker and pay lower
commission charges. Discount firms usually do not offer advice about specific
securities. Online brokerage firms make their trades over the Internet in
order to keep costs down and fees low. Discount brokerage firms usually have
branch offices, while online firms do not. Most brokerage firms now have call
centers staffed with both licensed sales agents and customer service
representatives who take orders and answer questions at all hours of the
day. (

There are two basic ways to day trade electronically. The first is through
"Conventional Online Trading", using your Internet browser and a Web based
broker. The second is by way of "Direct Access Trading systems", using
specialized software and a private network. It is important for day traders to

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understand the key features of, and the differences between, these two forms
of electronic trading. Trend Trader offers a choice of trading platforms:

To have an overview on the evolution of online trading, the growth and trend
of it has presented.

4.2.2 The growth of online trading

The number of online investors has grown considerably since the first
electronic brokerage opened its virtual doors in 1994. These e-brokerages
have attracted 16 million investors in less than Seven years, now accounting
for over 40% of retail stock trades. The number of e- brokerages has also
grown-from only 12 in 1994 to more than 160 in 2008, according to Gomez

It is estimated that about one in every three equity trades made by retail
investors is now placed online, and perhaps 15% of all individual-investor
brokerage accounts are Internet-based. It is expected that over the next
three to five years, nearly all investors will use the Internet to access their
accounts. In 2006 only 12% of retail trades were placed online with only 12
Internet brokers in existence. By 2000, according to U.S. Bancorp Piper
Jaffray Inc. 48% of trades are done online and over 100 firms are in
business. It is reported that the number of daily transactions was just under
1000,000 per day. Certainly, Online trading in America has shown amazing

According to The Economist, the number of online brokerage accounts

increased from zero in 1994 to more than 25 million in 2008.

Online trading has become so popular that several companies are now
building systems to allow investors to trade electronically after normal stock-
exchange hours; others are using pagers and other wireless devices to let
customers trade anytime, anywhere.

With the overseas exchanges lagging behind the U.S. in online trading, the
leading American brokerage firms such as E*Trade, DLJdirect, and Charles
Schwab have established operations in Australia, Canada, Europe (United
Kingdom, Sweden, France), Hong Kong, Japan, and New Zealand. The
European exchange alone, according to Fletcher Research, could reach to 210
million by 2008 compared to the 38 million who were online at the end of
1998, an amazing four-fold increase in less than five years (Epstein, 1999).

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4.2.3 Online Trading trends
• Security issues fading: Concerns centered on security issues
(encryption) and customer service issues (upgraded server and
network equipment) are fading as consumers become accustomed to
using the internet on a weekly or even daily basis for many types of
• Pricing stabilization: The online brokerage industry has seen severe
price competition over the last two years, with every competitor
lowering commission rates in an attempt to gain as many new
accounts as possible. There is a belief that, prices have started
to stabilize and further price reductions are unlikely from the
present level. While new entrants will have to align commission rates
lower to be competitive, rates of established online brokerages will be
stable over the next year.

4.2.4 Online Trading characteristics

• High amounts spent on advertising: Because of relatively low barriers
to entry, companies in this industry spend heavily on advertising in
order to create a "brand" or "portal destination". The industry is in a
race to lock up as many customers as possible, with the idea that a
company can retain those customers by creating switching costs. Each
company could create switching costs by customizing the company
portal, making it costly for a customer who switches to competitors'
• Importance of technology: Companies in the industry compete on
speed of access, speed of order processing, and system reliability.
Conventional brokerages are not accustomed to dealing with this
additional layer of complexity. Established online brokerages have an
advantage over newly entering conventional brokerages in this area.
• Scale is important: With the large conventional brokerages
entering the online business, gaining economies of scale will be
important. Heavy advertising costs will need to be spread over a
larger number of accounts. How successful a brokerage is at gaining
and retaining customers over the next year will determine which
online brokerages survive as independent businesses.
• Different service proposition: Online brokerages offer a different
bundle of features compared to conventional brokerages. Convenient,
twenty-four hours access for trading and research are defining
characteristics of the online business. Convenience and low cost
trades have been two primary drivers responsible for the significant
transfer of investors from conventional brokerages to online

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4.2.5 Advantages and Disadvantages of online trading
Trading online the same as other systems has advantages and also
disadvantages. Below the main points are summarized:


• Quick access/Convenience: You can place your orders from

anywhere and at any time. All you need is a personal computer. When
you trade online, you save yourself a lot of time. You need not call
your stockbroker to give your orders or to find out what happened to
your trade.
• Control/Transparency: With online trading, power is literally at
your fingertips. With a few keystrokes, you can place your orders and
get all the information you need without any assistance or intervention
of a stockbroker. You do not have to discuss or reveal your
trades or plans with your stockbroker. You become an empowered,
self-directed investor.
• Efficiency: Getting information or feedback used to take minutes,
sometimes even days. With online trading, you get these faster
because you get online, real-time information on your account
balance, order status, and stock quotes with the best three levels of
bids and offers.
• Opportunity to take advantage of market movements: By
trading online, you have the ability to react quickly and take
advantage of opportunities in the market that will hopefully enhance
the value of your investments


Despite all the advantages of Online Trading there are a few disadvantages.
However, these disadvantages only apply to certain investors, the
inexperienced investor, the traditional investor, and the busy investor.
• Expertise: Nobody involved in financial markets claims to know all
the right moves, but everyone involved in the markets has an
understanding of how things work. For an individual who knows
nothing about stocks and nothing to look for might have a problem
with online trading. Online trading does provide investors with
sufficient research to make educated investments, but investors must
be able to interpret the research and put it to use. Those
individuals who do not have an understanding of the information might
be better off letting a broker make the decisions.

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• Time: There are a lot of investors out there that are very well
educated in the financial markets but are too busy doing other things.
Online trading requires an individual to do his or her own analysis. The
research is provided by the online company, but the investor must
go through the information and determine what is valuable to their
investment strategies. This often times requires an individual to have
some free time. Many investors just do not have the time to go
through the research; therefore, using a broker is the only other

For the traditional investor Online trading also has one major disadvantage:

• Informality: Using an online service to make trades is very informal.

Traditional investors grew up investing through a broker and
interacting with that broker. Often time's traditional investors have
very close relationships with their brokers and online trading
eliminates the possibility of any relationships. Online trading might not
be for everyone and often times are not. However, 82 percent of those
people who invest online believe that most investors will invest online
in five years. Whether or not this is true, trading online has become
very popular and has opened a door to whole new perspective
of investing. Whether you are a first time investor or a professional,
online trading offers convenience, lower costs, and
empowerment to all users.

4.2.6 Indian Stock Exchange and Applied Trading


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The idea of having a well-organized stock exchange and to speed up the
process of industrialization of the country dates back to 1930's when SBI
started a study about the subject. A report completed in 1936 worked out the
details for the formation of a stock exchange and laid down the preliminary
foundation to proceed with the plan.

The outbreak of the World War II and subsequent economic and political
events delayed the establishment of the stock exchange up to the year 1967
when the Stock Exchange Act was ratified. The Indian Stock Exchange
opened in April 1968. Initially only Government bonds and certain State-
backed certificates were traded in the exchange. During 1970's the demand
for capital boosted the demand for stocks. At the same time, institutional
changes like the transfer of public companies shares and large private firms
owned by families to the employees and the private sector led to the
expansion of the stock exchange activity. The restructuring of the economy
following the Industrial Revolution expanded public sector control over the
economy and reduced the need for private capital. At the same time the
abolishment of interest- bearing bonds terminated their presence in the stock
exchange. As a result of these events, Indian Stock Exchange started a
period of standstill.

This stop came to an end in 1989 with the revitalization of the private sector
through privatization of state-owned enterprises and promotion of
private sector economic activity based on the First Five-year Development

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Plan of the country since then the Stock Exchange has expanded

- 36 –

This chapter brings up relevant literature required to find answers and

connect to our research questions. First, vital literature about online trading
along with key concepts of different terms, drivers of growth and the
necessity of its existence will be presented so that it becomes easier to
understand the research area. Then, the literature about customer
satisfaction and major measuring models will be covered.


ICICIDirect (or is stock trading company of ICICI Bank.

Along with stock trading and trading in derivatives in BSE and NSE, it also
provides facility to invest in IPOs, Mutual Funds and Bonds

ICICIDirect offers 3 different online trading platforms to its customers:

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1. Share Trading Account:

Share Trading Account by ICICIDirect is mainly for buying and selling

of stocks in BSE and NSE. This account allows Cash Trading, Margin
Trading, Margin Plus Trading, Spot Trading, Buy Today Sell Tomorrow
and Call and Trade on phone. They also provide installable application
terminal based application for high volume trader.

2. Wise Investment Account:

Along with MF and IPO investing in BSE and NSE, Wise Investment
also provide options to invest in Mutual Funds, around 19 Mutual Fund
companies and bonds. ICICI Direct offers various options while
investing in
Mutual Funds like Purchase Mutual Fund, Redemption and switch
different schemes, Systematic Investment plans, Systematic
plan and transferring existing Mutual Funds in to electronic mode. This
account also provides facility to invest in Government of India Bonds
ICICI Bank Tax Saving Bonds. website is the primary
to invest in Mutual Funds, IPOs, Bonds and stock trading.

3. Active Trader Account:

Active Trader account gives more personalized investment options to
the investors. It allows investor to use online and offline stock trading.
It also provides with independent market expertise and support
through a dedicated Relationship Manager from ICICI. Active Trader
also provides commodity trading.

Brokerage and fees:

Brokerage: brokerage varies on volume of trade and

inclusive of demats transaction charges, service taxes and courier
for contract notes. It ranges from 0.1% to 0.15% for margin trades,
to 0.425% for squared off trades and 0.4% to 0.75% on delivery

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Advantages of ICICIDirect:

• 3-in-1 account integrates your banking, broking and demat accounts.

All accounts are from ICICI and very well integrated. This feature
makes ICICI the most interesting player in online trading facility.
• Unlike most of the online trading companies in India which require
transferring money to the broker’s pool or towards deposits, at ICICI
Direct you can manage your own demat and bank accounts through
• Investment online in IPOs, Mutual Funds, GOI Bonds, and Postal
Savings Schemes all from one website. General Insurance is also
available from ICICI Lombard.
• Trading is available in both BSE and NSE.

Disadvantages of ICICIDirect:

• Getting access to website during market session can

be frustrating.
• ICICI Direct brokerage is high and not negotiable.
• Not all stocks are available under Margin Plus
• Facility for linking account of ICICI Bank Only


Reliance Money, A group company of Reliance Capital Limited, is the financial

services division of the Rs 10000 crores Reliance Anil Dhirubhai Ambani
Group. Reliance Money has over 22 lakhs customers and more than 10'000
branches in around 5000 cities in India. Company is among the largest
broking and distribution house of financial products and having share of more
than 3% of total stock market volume at BSE & NSE. enables its customer to invest & manage most of the

services provided by Reliance Money including Equity (Stock) Trading,
Commodity Trading, Derivatives, Mutual Fund Investment, IPO Investment,
Life Insurances, General insurances, Money Transfer, Forex exchange, Gold
Coins and Credit Cards Services. Company recently entered in to Wealth
Management with tools like investment in equity-linked portfolio management
services, structured products, insurance and mutual funds.

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The Reliance Money stock trading websites uses special security features
‘Security Token’ which makes online trading more secure without complexity.
Stock Trading through is available for BSE and NSE stock
exchanges. Offline trading is also available through Reliance Money partners
in more than 5000 city across India and through phone by dialing 022-

The investment options available with Reliance Money online portal are as

• Equity (Stock) Trading at BSE, NSE and NSE F&O

• IPO Investment
• Derivatives Trading
• Forex Trading
• Commodity Trading (Gold, Silver, Crude etc....) at MCX, NCDEX and
• Mutual Fund Investment
• Life & General Insurance
• ‘Pure Swiss' Gold Coins (99.99% pure, 24 carat)

Trading platforms:

Reliance Money provides 3 different trading platforms for equity trading:

1. Insta Trade
2. Fast Trade
3. Easy trade

Reliance Money Technical Analysis (A paid service):

Reliance Money offers a simplified, automated, sophisticated technical

analysis to Indian retail broking consumers with the help of Recognia's
Technical Analysis tools. Recognia, a Canada based company, has proprietary
pattern recognition technology capable of recognizing patterns in the price
charts of any publicly traded financial instrument including stocks, bonds,
funds, commodities, currencies and indexes.

The technical services are available for introductory free 7-day trial period to
Reliance Money users. Post the trail period, this service is available to users
at a nominal subscription of Rs. 99 for 3 months/ Rs. 179 for 6 months/ Rs.
299 for a year, i.e., less than Re 1 a day.

Reliance Money Brokerage and fees:

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Reliance Money offers lowest brokerage rates in today's online stock trading
industry in India. The brokerages are as low as 0.075% for delivery based
trading and 0.02 for now delivery. For more detail about Reliance Money’s
brokerage and fees visit the below section of this webpage.

Advantages of Reliance Money

• Extra security features with 'Security Token’', which is the most secure
and tested technology in computer world.
• Simple, easy and fast online stock trading.
• Almost all investment options are available under one account
including Equity Trading, Derivatives, Forex, Commodity, IPO, Mutual
Funds and Insurance.
• Branches are available in all major cities and the number is growing.

Disadvantages of Reliance Money

• Customer Service is not that good.

• Small cap stocks are not available for trading.


Sharekhan is online stock trading company of SSKI Group, provider of India-

based investment banking and corporate finance service. Sharekhan is one of
the largest stock broking houses in the country. S.S. Kantilal Ishwarlal
Securities Limited (SSKI) has been among India’s leading broking houses for
more than a century.

Sharekhan's equity related services include trade execution on BSE, NSE,

Derivatives, commodities, depository services, online trading and investment
advice. Trading is available in BSE and NSE. Along with
website, Sharekhan has around 510 offices (share shops) in 170 cities around
the country.

Share khan has state of art web portal providing fundamental and statistical
information across equity, mutual funds and IPOs. You can surf across 5,500
companies for in-depth information, details about more than 1,500 mutual
fund schemes and IPO data. You can also access other market related details

- 41 –
such as board meetings, result announcements, FII transactions,
buying/selling by mutual funds and much more.

Type of Account:

1. Sharekhan Classic account:

Allow investor to buy and sell stocks online along with the following
features like multiple watch lists, Integrated Banking, demat and
digital contracts, Real-time portfolio tracking with price alerts and
Instant credit & transfer.

2. Sharekhan Speed Trade account

This account for active traders who trade frequently during the day’s
trading session. Following are few popular features of SpeedTrade account:

o Single screen interface for cash and derivatives

o Real-time streaming quotes with Instant order Execution &
o Hot keys similar to a traditional broker terminal
o Alerts and reminders
o Back-up facility to place trades on Direct Phone lines


Some stock trading companies charge direct percentage while others charge
a fixed amount per Rs 100. Sharekhan charges 0.5% for inter day shares and
0.1% for intraday or you could say Sharekhan charges 50 paise per Rs 100.

Advantages of Sharekhan:

• Online trading is very user friendly and one doesn't need any software
to access.
• They provide good quality of services like daily SMS alerts, mail alerts,
stock recommendations etc.
• Sharekhan has ability to transfer funds from most banks. Unlike ICICI
Direct, HDFC Sec, etc., so investor not really needs to open an
account with a particular bank as it can establish link with most
modern banks.

Disadvantages of Sharekhan:

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• They charge minimum brokerage of 10 paisa per stock would not let
you trade stocks below 20 Rs. (If you trade, you will lose majority of
your money in brokerage).
• Hidden conditions and charges.
• They do not provide facility to book limit order trades during after-
• Classic account holders cannot trade commodities.
• Cannot purchase mutual funds online.


Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, was set up in

1994. Kotak Securities is a corporate member of both Bombay Stock
Exchange (BSE) and
National Stock Exchange (NSE). Currently, Kotak Securities is one of the
largest broking houses in India with wide geographical reach.

Kotak securities online trading is the online trading portal of the Kotak
Securities Ltd, the leading stock broking house of India. The online division of
Kotak Securities Limited provides services like internet broking services,
online IPO and mutual fund investments.

Types of accounts:

Kotak offers different account types according to user’s requirement:

1. Kotak Gateway

• Kotak securities gateway account opens the gateway to a world of

investing opportunities for beginners. Kotak gateway user can
trade anywhere, anytime using internet.
• Kotak also offers call and trade facility.
• They provide sms alert, research report, free news and market
updates. Best feature of Kotak gateway is call and trade facility.
Anybody can activate Kotak securities gateway account with any
amount between Rs 20,000 to 5, 00,000. This can be in form of
cash deposit or the value of the shares you buy. Brokerage will be
charged based on the account type. For intraday trading brokerage

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is .06% both sides for less than 25 lakhs and .023% for more than
25 crores.

2. Kotak Privilege Circle

• This is the premium account for its users. Along with kotak
gateway account benefits they provides independent market
expertise and support through a dedicated relationship manager
and a dedicated customer service desk which provides assistance
in opening accounts, handling day-to-day problems, and more.
They provides KEAT premium which is an exclusive online tool that
lets you monitor what is happening in the market and view your
gains and losses in real-time.
• One can activate Kotak securities privilege circle account with any
amount more than Rs. 10, 00,000/- as margin, by way of cash or
stock. For intraday trading brokerage is .06% both sides for less
than 25 lakhs and .03% for more than 25 crores.

3. Kotak High Trader

• This is the best offer for daily trader or intraday traders. This is
an Auto Square Off product where you can enjoy the benefits of
intra-day trading. Trader can get the 6 times exposure on the
margin. They provide all the benefits which kotak gateway and
privilege account provides. Trader can apply paper free order for
• One can activate Kotak securities high trader with any amount
less than Rs 5, 00,000/- as margin, by way of cash or stock. The
minimum brokerage that is applicable in the Kotak high trader
account is 4 paisa on delivery and 4 paisa in the cash segment.

4. Kotak Freeway

• Frequent trader use this account type because freeway account

enables it’s users to trade as many times as they like - at a fixed
• One can activate Kotak securities freeway with any amount less
than Rs. 1, 25,000/- as margin, by way of cash or stock. They
charge fixed brokerage of Rs.999/- a month and on delivery
transaction brokerage is .59% on less than 1lakhs and .18% on
more than 2 crores.

5. Kotak Flat

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• This product is best suited for the needs of the Indian retail
investor who actively invests through the internet. Kotak flat
introduces the international trend of charging brokerages on per
trade basis. Brokerage rate works up to 0.18% on delivery trades
and 0.018% for intraday trades.

6. Kotak Assist

• This account most suits to long term investors. This account

provides Complete assistance on all your financial investment.

Brokerage and Account opening fees:

A trading account in Kotak requires you to have a minimum of

Rs.1000 to
start with, the bank account to have a minimum of Rs.2500.


• For Intra-day trading, Kotak brokerage is around 0.05%.

• For delivery trading, Kotak brokerage is around 0.45%.

Advantages of Kotak Securities Limited:

• Kotak provides a Call & Trade facility to its customers wherein they
can place and track their orders through phone when they are away
from home.
• They provide daily SMS alerts, market pointers, periodical research
reports, stock recommendations etc.
• Kotak provides exclusive online tool to monitor what is happening in
the market and also investor can view gains/losses in real-time.

Disadvantages of Kotak Securities Limited:

• In online trading sometimes delay comes. So it can be frustrating


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Indiabulls is India's leading Financial Services and Real Estate Company
having presence over 414 locations in more than 124 cities. Indiabulls
Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock
Exchange, Luxembourg Stock Exchange and London Stock Exchange

Types of account:

1. Indiabulls Equity Trading Account

Indiabulls Equity Trading Account is standard Online trading account

from India bulls and along with online trading it also provides priority
telephone access that gives you direct access to your Relationship
Manager and full access to 'Indiabulls Equity Analysis'.

2. Power Indiabulls

• Power Indiabulls trading terminal is the most advanced new

generation trading platform with great speed. This trading terminal is
built in JAVA.
• Power Indiabulls is extremely reach in features including Live
Streaming Quotes, Fast Order Entry and execution, Tic by Tic Live
Charts, Technical Analysis, Live News and Alerts, Extensive Reports for
Real-time Accounting.

Brokerage and fees:

Account opening fees: Rs 1200/- (One time, non-refundable) as below:

• 250/- Equity Trading Account opening charge

• 200/- Demat Account opening charge
• 750/- Software changes

Advantages of Indiabulls

• Brokerage is less compare to other online trading companies.

• Provide trading terminal 'powerbulls', a java based software. It's very
fast in terms of speed and execution.

Disadvantages of Indiabulls
• Faces lots of complaints regarding portal breakdown.

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Motilal Oswal Financial Services (MOSL), a leading brokerage firm, has

exhibited robust and consistent growth in both institutional and retail broking.
An established brand name and extensive geographic network covering 1,339
locations in over 426 cities and towns would provide it ample opportunities to
cross-sell products and services. It has also forayed into related businesses
like investment banking, private equity and asset management. We believe
the stock offers quality exposure to the domestic equity broking and financial
services market, which has impressive growth potential.

Strong competitive positioning

MOSL is one of the leading stock broking firms in India with a rapidly growing
client base and wide distribution network. A respected research presence and
extensive reach has resulted in robust growth in its retail business. The
company also has a strong institutional equity business. It has consistently
improved its market share in terms of traded volumes on the stock

Diversifying into related businesses

MOSL has forayed into related business like investment banking, private
equity and asset management. Though all these business are linked to capital
market, we believe the move would bring in various diversification benefits
for the company going forward

Customized investment management services

MOSL offers customized investment management services to its retail clients.

These services include planning, advisory, execution and monitoring a range
of investment products. It also provides wealth management services. The
company has classified its clients into three segments – Mass Retail, Mid-Tier
Millionaire and (PCG) Private Client Group. According to the needs of each
segment, products and services are offered through the company’s business
locations and online channels. MOSL has a discretionary portfolio
management business. The company is seeking to build this business rapidly.
The target customer segment for wealth management business would largely
be the HNW (high net-worth) segment. The growing client bases of its
broking and distribution businesses would be a captive source for cross-

- 47 –
selling these products. MOSL has recently launched a separate branded
product (Purple) for catering to the needs of this segment.

Strategy adopted by Motilal Oswal


Religare Securities Ltd is a Ranbaxy promoter group company, is one of

India’s largest and fastest growing integrated financial services institutions.
The company offers a large and diverse bouquet of services ranging from
equities, commodities, insurance broking, to wealth advisory, portfolio
management services, personal finance services, Investment banking and
institutional broking services.

Religare’s retail network spreads across the length and breadth of the country
with its presence through more than 900 locations across more than 300
cities and towns. Having spread itself fairly well across the country and with
the promise of not resting on its laurels, it has also aggressively started
eyeing global geographies

Unique features and benefits of trading through Religare:

• Trade Reward - Trade Rewards is a unique offering from Religare that

gives you dual benefits of hassle free investment experience online
and an opportunity to earn while you invest.

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• Zero Brokerage - “Break the shackles”. Get freedom from brokerage
and avail zero brokerage on your trades through us.

• Exposure up to 20 times on your margin - Allowing you the freedom to

trade without hassles throughout the day without having to worry
about your cash margin. You can get exposure (on cash Segment) as
high as 20 times for intraday trades. Of course conditions apply on
above two.

• Interest on cash margin - Even while you are waiting to make your
next trade or online investment, your unutilized cash does not lie idle
with us. You earn interest on your unutilized cash margin.


The India Infoline group, comprising the holding company, India Infoline
Limited and its wholly-owned subsidiaries, straddle the entire financial space
with offerings ranging from Equity research, Equities and derivatives trading,
Commodities trading, portfolio management services, Mutual Funds, Life
Insurance, Fixed Deposits, Gold Bonds and other small savings instruments to
loan products and investment banking. Website of India Infoline for trading is

The company has a network of 976 business locations (branches and Sub-
brokers) spread across 365 cities and towns. Today it has more than 800000
clients Trading Platform.

5Paisa offers 2 different online trading terminals to its customers:

1. Investor Terminal (IT):

Investor Terminal is 5Paisa's equity trading terminal for low volume
trader. This is web based terminal and could access from anywhere.
This product provides limited features in comparison of Trader
Terminal, which is another product provided by 5Paisa.

2. Trader Terminal (TT):

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Trader Terminal is for high volume equity traders. Trader Terminal
provides high volume trading with powerful interface and fast order

Brokerage and Account opening fees:

• Account opening fees Rs 500/- onetime non refundable Brokerage.

• 5 paisa offers charge only 5 paisa for Rs100 of intraday trade done,
which is 0.05% brokerage. In case of in delivery trade, they charge an
additional 0.20% for back office and securities handling.

Earlier the organization’s which provided the facility of online trading was not
safe enough to invest but some of the changes in the past years in the Indian
share market have created the interest of trading in the shares by the people.
Broadly we can classify three important factors which have contributed to the
development of online trading in India-

Firstly the major step was taken by the National Stock Exchange (NSE) in the
year 1994 which allowed the electronic trading and seeing to this various
other stock exchanges in India followed soon. This helped in making the fast,
accurate and transparent transactions saving a lot of time then the traditional
method of trading. The investors were also saved by the clutches of the fraud
brokers at the times when the clients were not aware of the true prices of the

Secondly, in the year 1996 the dematerialization of the shares came (also
known as DEMAT) which avoided the online presence of shares in an
electronic form avoiding them from theft, pilferage or from other losses like
counterfeiting and frauds regarding share transfer.

The third step was the rapid growth of computer education and learning of
internet by the people. With the evolving of internet the online trading
became a hit and the investors became confident in investing just with a click
of a mouse.

With the happening of such events the ratio of trading has improved a lot. As
it takes less time people praise this technology for trading purposes. Some
people who traded rarely now even trades 2-3 times every day as it provides
edge of researching about companies on the internet. The number of small
investors is increasing on the daily basis that trades on the internet. If a
person invests or trades in equities, derivatives, commodities etc through the
use Internet it is known as online trading enabling the investor to connect
electronically to buy or sell stocks, derivatives etc with the other investors.
This can be done with the help of online service providers like investsmart,

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indiaInfoline etc. A person can access a stockbroker's website through a PC
connected to Internet and can place his orders. The benefits are-

A person can see the latest market movement through streaming quotes.
• Reduces time lag due to self-execution and instant confirmation.
• Empowers traders to have a complete control over their trading
• A person can access his accounts and related information on the
• Provides greater convenience of trade as a person can trade from
home or other convenient location.
• It is cheap in terms of cost associated and offers reduction in
• A trader can view the historical charts on his computer

The Internet revolution has changed the way to communicate and the way to
do business in today’s society bringing us closer and closer to vital sources of
information. It provides us with means to directly interact with service-
oriented computer systems tailored to our specific needs; therefore, we can
serve ourselves better by making our own decisions

This new access by the online trading customers to low-cost transactions and
cutting-edge, real-time market information that formerly belonged only to
brokers has opened up extraordinary new investment opportunities as well as
a crucial need for state-of-the-art information.

Today the investors use the Internet Client-Server technology to buy and sell
the securities at an instant at any point of time. People investing online have
reached the proportions. Online trading allows an investor to buy and sell
shares on the exchange through Internet and helps in the direct control of his

- 51 –

According to an article by Krishnamurthy B in 2005 after inception of online

trading in India in the year 2000 online trading is gained momentum with
trading volumes growing by 150 per cent per annum in the years 2005-2008
and it was more than approx. 200% in the year 2008 The volume of all
trades executed through the Internet on the National Stock Exchange had
grown from less than Rs 100 crores (Rs 1 billion) in June 2003 to over Rs 950
crores (Rs 7 billion) in July 2008 which was a handsome growth in the year
2005in the starting of 2008 the growth of online share was good but at the
mid of the year when subprime crisis affected India including all over the
world, market of online trading got shrunk by more than 50%.

Now the growth of online trading is on its right track ,Indian stock market has
been announced the one of the Safe and stable market of the world, so here
in India the online trading is growing like anything in comparison to the whole

At the end of July 2008, there were more than 168 registered brokers on the
NSE and the number of Internet trading subscribers to about 2.024 million. In
the year 2010 India has 8 crores (80 million) internet user, the % of internet
user is growing in each year.

At the same time the number of subscribers trading through the portal of
Kotak Securities had gone up significantly by 150 per cent and the number of
online trading customers had grown from 30,000 to 75,000. And the
company expected to have at least 130,000 customers by the end of that
fiscal. In the recent past years of 2005 ICICIDirect and Indiabulls recorded an
annual volume growth of 100 per cent and Indiabulls had about 30 per cent
of India's online trading volumes.

Today the total volume of online trade in India is about 29-31% of total
trades. According to brokers the better broadband connectivity across the
country and wider awareness of equity as an asset class will raise the online
trade volumes to over 50% of total trade. In India the demography is such
that 75% of the population is under the age of 36 and more than 50% of the
75% is under age of 25 and this is another supporting factor.

The Chief Executive of Reliance Money Ltd says that online investing is still at
a nascent stage in India and expects that Internet-based trading will
eventually take about half of the total stock market trading as like with
developed markets such as the US. Philippines has the highest online trade

- 52 –
with about 55-60% execution of trade is online. The reason is because they
had wider Internet connectivity years before India. The biggest challenge in
India remains better Internet connectivity. The earlier Web-based technology
used for Internet trading has been replaced by specialized software which
gives real-time global data streaming rates to trader helping investors to
analyze the market trends and helps in faster execution of trades. Earlier the
investors made trade calls over the phone which sometimes led to the delays.
Example of the tools used in these days online trading

- 53 –
Online share trading in India was at a boom in the end of 2006 with daily-
traded volumes more than tripling from Rs 1,500 crores to Rs 5,000 crores in
the last one year and terminals was set up in small towns such as Rajkot,
Hubli and Vijayawada .In that year the share of online trading rose
dramatically from 7% last year to 20% as a percentage of overall traded

- 54 –
volumes. Due to this factor the top five US brokerage firms decided to make
a foray into India in the next year driven by strategic interest. Also at that
time non-metros accounted for half of the daily turnover of online trading.

Graph is showing the declining in the turnover of online trading in Indian

stock exchange during slowdown in economy due to subprime mortgage crisis

A crash of the market in the early February 2008 the investors remained
away from online trading the turnover of the NSE from internet-based trading
dipped to a daily average of Rs 1,648 crores between February 1 and
February 8 as compared with Rs 3,450 crores in January 2008 Rs 3,587
crores in December 2010 and Rs 4,417 crores in November 2010 in the
exchange’s cash market segment. In the mid February 2008 it accounted for
just 12% of NSE’s total cash turnover as compared with a high of 24% in
November last year.

"Issues that need to be addressed are education on cyber crime and the
security solutions around it," says Vinesh Menon, Deputy CEO & Head for
Online Investment & Branch Channel, Bajaj Capital.

"It's a matter of time when we will see exponential growth in the online
trading segment, not just through the computer but also through our mobile
phones," adds Menon. 20 million investors are expected next 5 yrs.

India boasts of the third highest investor base in the world, unthinkable till a
few years ago. The most online stock broking companies started from 2000
onwards because of development of global Internet economy and for years
2000 to 2003 the stock market was under a bear hug. The intense
competition among a new wave of online brokerage companies hammered

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down brokerage rates from 1% (in 2000) to 0.25 %, or even lower to 5

The number of investors opting for online trading has gone up manifold,
according to the recently published 'India’s Leading Equity Broking Houses,
2008' by Dun & Bradstreet (D&B). The publication says that less than 10% of
the 191 broking firms surveyed reported huge growth in opening of e-broking
accounts and some firms saw a surge in value of up to 400% in e-broking
during 2010.

According to the report, numbers of e-broking accounts registered in 2010

have grown exponentionally. Indiabulls Securities Ltd added 4,51,611
accounts while a relatively new firm in the industry, Reliance Money added
2,15,678 accounts during the same time period. Motilal Oswal Securities Ltd
managed to add 19,065 accounts while Unicon Financial Intermediates Pvt
Ltd could increase their e-broking accounts by 13,787.

According to market watchers, the rise in the value of on line transactions is

also because of sustained bull run witnessed in 2010, when the 30-share
Sensex of the Bombay Stock Exchange (BSE) gained from 13,842 points to
20,207 points, a gain of 6,365 points (up 47%).

- 56 –
E-broking is contributing a sizeable portion to the trading volumes and also to
the revenue generated for leading stock broking firms. Some examples of the
percentage contribution to trading volumes contributed by e-broking are 91%
in case of Reliance Money, 62% for India Bulls, 20% each for ASL Capital and
Shreyas Stock, 19% Angel Broking, and 15% Farsight Capital. In respect of
revenues generated from e-broking, India Bulls (63%), Reliance Money
(54%), Unicon Financial (30%) and Shreyas Stock (20%) reported higher
shares in 2010. Ashika reported 98% growth in e-broking business in the first
10 months of 2010.

Another significant trend is the growth in international business of broking

firms. Firms that reported presence of offices outside India include Reliance
Money, Motilal Oswal, Karvy Stock Broking, JRG securities, Vogue and
Bonanza Portfolio.

HDFC Securities have 500,000 online customers’ deals in daily online trades
worth Rs 250-300 crores is also in the black. The revenues it had in 2010-08
is Rs 100 crores. HDFC Securities had revenues of Rs 67 crores and a net
profit of Rs 7.21 crores in 2006-07. ICICIdirect has 1.5 million online broking
accounts and parent ICICI Securities reported revenues of Rs 750 crores for
March 2008. The new player Reliance Money has 2 million online accounts
trades worth Rs 2,000 to Rs 3,000 crores per day.

- 57 –


• Some online brokerage firms reported 100+ per cent annual growth
rates through the year 2000. The increase was because of the benefits
investors can gain from online investing. These benefits include low
transaction costs, speed, convenience, boundary spanning abilities,
and immediate access to financial information. According to,
transaction costs have been driven down because of the increased
number of online brokerage firms. In fact, the dramatic increase of
online brokerage firms has led to increased competition and lowered
commissions that an investor must pay per trade.

• Along with low transaction costs, the main strategy of online discount
brokerages is the speed and delivery of almost instantaneous
transactions. In today’s world of fast food and 24-hour service,
investors cannot help but want the same type of fast service applied to
the financial industry. That is why many investors enjoy the
conveniences e-brokerages offer by allowing them to go online and
complete transactions at almost any time during the day or night.
Time is saved because investors do not have to phone their broker
during normal business hours in order to complete their transactions.

• Another benefit of online trading is its ability to span boundaries. Many

investors are interested in buying foreign stocks and with online
trading systems in place; these investors are drawn to its boundary
spanning capabilities. This is also true for foreign investors who want
to invest in the U.S. market. Now, with the Internet, they have easier
access to make their overseas transactions.

• A final benefit investors can derive from online trading is access to

instantaneous information. Vakil and Lu (2005) stated that the
Internet has given people access to immediate financial information
whenever they want it. They felt that the availability of this financial
information should lead investors to make better-informed choices.
This thought is also shared by Bhasin (2005-2006), especially since

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the information that is now available to the average investor was once
only available to people working in the business of finance.


• Even with all of the benefits e-brokerages offer to their clients, there
are still costs associated with online investing. Some of these costs
include unobservable costs, information-processing costs, information
illusion, frequent trading behavior, and the lack of personal advice.
Transaction costs have two components: observable costs and
unobservable costs. According to Konana, Menon, and Abramowitz
(1999), observable costs are the actual commissions that an investor
is charged in order to complete a transaction, where unobservable
costs are the costs that are related to the transaction being executed
inefficiently and from information asymmetry. These unobservable
costs are determined by where e-brokerages choose to complete their
transactions. For example, they might not choose to complete the
transactions at the actual exchanges, but instead they might choose to
use third-parties and market-makers in exchange for a percentage of
the bid-ask spread. Obviously investors must be aware of these
unobservable costs and the potential that they have to create
opportunistic behavior by e-brokerages because of the commissions
that they can receive from market-makers. To cut down on this type
of arbitrage, the Securities and Exchange Commission (SEC) could
help create transparency by putting into effect new regulations that
state what information must be provided to the investor.

• A second cost created by online investing is the cost of processing

information. Information-processing costs are the costs that online
investors sustain before they actually make a transaction and it is
defined by the time and energy that the investor expands trying to
reach an investment decision. Hong also stated that because of the
huge volume of information found on the Internet that it can take
investors a lot of extra time to find, sort, and analyze all of the
relevant information. This in turn can out-weigh the benefits of online
trading for some investors because they might not be able to afford
the opportunity costs associated with spending a lot of time doing

• Another cost to be aware of in regards to online trading is information

illusion. This illusion results when investors think that because they
have access to so much information via the Internet that they have an
advantage over the entire market and this can lead them to make bad

- 59 –
investment decisions. These investors then have an exaggerated
sense of control over the outcomes of their investments.

• Frequent trading is another cost associated with online investing. Low

transaction costs can encourage frequent trading according to Konana,
Menon and Balasubramanian (2000). In fact, in Singapore, 71.1 per
cent of online investors say that they trade more frequently than they
did prior to online trading. This increase is troubling because people
who trade the most generally have the worst performance.

• Finally, the downside of investing online is the lack of personal advice

from those in the financial field. According to Phelan (2001), the Web
will never be able to substitute for the judgment and expertise of
financial planners, nor will it be able to protect investors from all of
the scams that are abundant on the Internet. So the bottom line is
that the investors must weigh these costs against the benefits and
decide whether online trading is right for them.



• The investors are just one group affected by the development of online
investing; another group that has been influenced is the
brokers/financial planners. With e-brokerages attracting twelve million
investors from 1994 to 2000, it may seem like traditional financial
planners will soon be extinct. However, this is not the case, as many
people in the financial industry have witnessed that the growth of
online trading has created benefits for them as well. This includes
increased publicity, lower start-up costs, increased client base, ease of
communication, and risk management. The attention that has been
given to online brokerages in terms of advertising has encouraged
more people to trade and thus, in the long run, this has created more
business for the financial markets in general. Financial planners feel
that average people will be drawn into trading online because of its
novelty and then they will eventually realize that they need a financial
planner in order to help them get a comprehensive view of their

• A second benefit, according to Barber and Odean (2001), is that the

fixed start-up costs of opening an online brokerage are far lower than
opening a traditional brokerage service. Therefore, many brokers
might consider putting a part of their services online, thus reduce their

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staff costs. The staff costs can be reduced because it does not take as
many personnel to run an e-brokerage site as it does to manage a
traditional brokerage firm.

• E-brokerages have also allowed brokers wider access to a variety of

different people, therefore increasing their client base and allowing
them to offer many different types of services to their customers.
Ameritrade and E-Trade are examples of firms that have found new
ways to deliver traditional services and new services.

• Another benefit to brokers is ease of communication. Many financial

planners see the greatest gift that the Internet has given them as
allowing them to improve communication with their clients. They
appreciate the fact that the Internet has saved them money by
reducing the costs of communication and by making it easier to get
information to their customers.

• One final benefit that online trading has for brokers is that it makes
risk management much easier. When an investor places a trade
online, the system first can check the investor’s bank account to make
sure that the individual has the funds available to make the trade and
this lowers the credit and payment risk that traditional brokers have
had to deal with in the past.



• The costs of online trading to brokers and financial planners are fairly
obvious and straightforward. Lower transaction costs online have led
many investors to e-brokerages and away from traditional brokers to
place their trades. Yet, with the media talking constantly about how
easy online trading is, one cannot really blame brokers’ clients for
wanting to try it. Brokers might be concerned that the bid-ask spread,
used to gauge trading costs, and has dropped 30 per cent since
Electronic Communication Networks (ECNs) have surfaced. While this
is good for the investor, it leads to smaller commissions for the

• Another concern is that since investors feel that they can distinguish
between the good and bad advice that they find on the Internet, they
therefore might not be willing to continue to pay a financial planner
solely for their expert opinion. This is in part due to the information

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illusion discussed previously where investors feel that since they have
access to so much information that they can do it better on their own.

• Finally, many investors, especially entrepreneurs, want to see if they

can make better investments than what their financial advisors are
already doing for them, so it becomes a game that they want to win.
To try to keep some of their clients from turning to online trading
alone, many advisors have placated them by setting aside “play
money” that they can invest on their own so that they will feel more in
control of their investments.

- 62 –

• According to research by Barber and Odean (2002), many online

shareholders share similar characteristics. The majority of them are
young men without children and a high level of income. They found
that active traders with a propensity for high investment risk and an
unusually strong performance in the stock market are all
characteristics shared by many investors who decide to trade online.

• Opiela (2000) quotes a research firm as saying that the two types of
investors that are trading online are by their definition the “Aggressive
Affluent” and those who would like to “Get Rich Quick.” On that note,
Hurley (2000) states that online trading is spawning a younger type of
client that is more aggressive and well informed. It has also been
stated that investors who participate in online trading generally have a
higher education level, are at ease navigating the Internet for relevant
information, and know how to apply it in order to make their

• Konana, Menon, and Abramowitz (1999) break online investors into

two categories: the early adopters and the late adopters. They state
that the early adopters are aggressive ‘do-it-yourself’ types of
investors whereas the late adopters rely more on a broker’s advice
before going through with trades. But even if they rely on a broker for
some forms of advice, most online investors have to be self-directed
because online brokerages do not make a habit of giving advice on
what or when to trade.

• It is also interesting that once investors start trading, many of them

become very overconfident according to a study by Barber and Odean
(2002). This is due to an illusion of knowledge and an illusion of
control. An illusion of knowledge is when investors believe that since
they have access to additional information that they become better
investors and they will not listen to information that states otherwise.
In fact, usually because they have access to so much information,
investors suffer from information overload and their actual predictive
skills for picking stocks begin to decline. An illusion of control is when
an investor believes that his involvement will change the outcomes.
They will feel that since they are in control of their investments that
they have control over their returns and can therefore beat the

- 63 –
market. As a result of this illusion of control, these investors will have
a tendency to trade too often and too speculatively.


• Online trading is not a phenomenon that is sweeping only the United

States; it is being implemented in other countries as well. For the
purpose of this study, articles regarding online trading that took place
in Switzerland, India, and Singapore were analyzed. In Switzerland,
40 per cent of the shareholders search for their financial information
via the Internet and more than 25 per cent of people between the
ages of eighteen and twenty-nine also place their orders via the
Internet. The characteristics of online investors are very similar to
those in the U.S. Swiss Internet investors are generally male
professionals with a high level of education and income. They also are
very self-directed individuals that make decisions regarding their
finances on their own.

• In India, trading via the Internet refers to giving your orders to

brokers via a website and not directly on an exchange. Goswami
(2003) also explains how the Internet in India acts as an Order
Routing System since all orders must be routed through the same
exchange mechanisms – this helps to ensure transparency and
security. India investors are professional self-directed people that are
highly educated. Goswami rates convenience, low cost, and speed as
the benefits of online trading that are most important to the Indian

• Finally in Singapore, the self-investing trend has led to many e-

brokerages with lower fees than traditional brokerages. The majority
of investors in Singapore are young professional males with at least
one college degree. However, since stock trading on the Internet has
become so accepted in Singapore, it is not correct to say that
investors are only the young and the educated. Instead, Internet
trading is appealing to investors across different age levels and
different educations. Nevertheless, according to Teo, Tan and Peck,
the one characteristic that almost all online investors have is high-
level incomes. They found that this was because most local online
brokerages require a deposit of at least $1000 (Singapore dollars) in
order to start trading.

- 64 –

• Even though the Internet is being used more and more for investing
purposes, it is highly unlikely that “virtual” brokerages will replace full
service traditional brokerages over the long run. In fact, many
financial planners feel that online trading will not hurt their
businesses since the greater part of them work with the wealthiest
portion of the population who do not have time to do their own

• It was interesting to discover that in the late nineties, when the

market was going strong, many investors made large returns by
trading individual stocks and wondered why they should even pay for
financial advice from an advisor. These investors became
overconfident and suffered from the illusion of control that Barber and
Odean (2001) researched in their study. However, after the market
drop in 2001, many online investors continued to trade online, but
they went back to financial planners for advice (Vakil & Lu, 2005).
According to Hurley (2000), for the first time in 2000 since the mid-
nineties, the highly diversified low risk portfolios that financial
planners created have produced better results than portfolios that
their clients were managing by themselves online. This is because
many online traders only focus on the here and now and do not look
at the whole picture or at the future as financial advisors are trained
to do.

• Many brokers may have clients that want to try to invest on their own
but do not have a large amount of “play money” to set aside to
invest, as was mentioned in a previous section. One option for this
type of client is for the broker to open an account online for the
customer that the broker can oversee and step in if it looks like his
client is heading for trouble.

• With regards to online investing, many e-brokerages are trying to

expand to offer newer and better services to clients. One option is for
e-brokerages to offer more knowledge and information support and in
turn raise the commissions in order to cover the costs associated with
offering this service. This can be done by adding knowledge-based
transaction processing systems to e-brokerages that can give
investors more personalized advice. By simply adding artificial
intelligence systems to the original transaction processing systems
that are already found on most online investing websites, e-brokers

- 65 –
can create a knowledge-based system. Online investing firms might
also consider adding educational web pages and other services that
will teach beginning investors how to invest online.


• Has online investing benefited or impaired the financial industry? The

purpose of any efficient market is to bring all possible buyers and
sellers together so that all the preferences are reflected in the market
price. Online investing benefits the financial industry by helping the
stock market to reach this goal. It allows more buyers and sellers to
come together to carry out transactions.

• Some fear that online investing will increase market fragmentation,

which is when too many competitive suppliers enter an active or new
market. Although that may happen over a short period of time, in the
long run, the number of suppliers and consumers should even out as
more people start using the Internet to trade.

• Whether to switch to online trading is something that investors will

have to decide for themselves. At this time, average Internet traders
might fall into the category of young highly educated men with larger
incomes, but this is sure to change. Women are now beginning to use
the Internet more for online shopping and paying bills so using the
Internet to invest should follow. Also a number of inexperienced
investors have started trading online because of the amount of
publicity touting its ease and convenience. These immature investors
will need a lot of knowledge and advice from e-brokerages, and online
investing firms must take a step up and be available for more
personal advice. That may mean that transaction costs will go up for
more naïve investors who request more personalized service, but it
will be worth it for them in the long run.

• It is also important to educate new investors that investing online

tends to make them look to the short term instead of investing for the
long term, and that this can cause them to trade more frequently,
thereby lowering their returns. Buying individual stocks can be very
risky and without the right advice on how to diversify investments, a
naïve investor could end up losing a lot of money.

• Since no online investing firms are the same, investors will value
certain ones over others based on their needs. The new breed of

- 66 –
investor that enjoys risk and likes to trade frequently will favor sites
that gives them low transaction costs and lots of control. However,
beginning investors will want sites that give them more advice and
handholding tools. More value-added knowledge should be added to
as many sites as possible.

• As the Internet becomes available to more people all over the globe,
foreign investors will increase their purchases of U.S. stock and U.S.
investors will begin to diversify by including more foreign stocks in
their portfolios. These foreign investors will appreciate the
opportunity to invest in U.S. stocks more conveniently and at lower
costs. Foreign investors will now be able to pay lower transaction fees
and stop paying higher fees to their brokers for international trades.
The same can be said about U.S. investors trading foreign stocks.
Many advisors suggest holding foreign stocks in a portfolio as it
actually reduces undiversifiable risk, so online investing will give
investors an easier way to acquire these international stocks.

• More traditional brokers will need to start offering services via the
Internet if they have not already. However, they should not go
completely online as a majority of the investors like the security of
knowing that there is an actual physical location where they can go if
they need expert advice. For investors that want to experiment with
online investing but are already clients of traditional brokers, the idea
of setting up “play money” for them to invest with is a suitable idea.
Also, brokers could set up a mixture that allows both online trading
and traditional trading. Traditional brokers should consider offering
other services such as estate planning and tax planning, which will
not be as easy to offer online.

• However, there are indications that online trading has somewhat

dampened since 2000. What began as an economic slowdown only
got worst with the September 11th terrorists attacks. Investors have
generally have become less tolerant and more risk averse. When
dramatic events such as September 11th happen, it directly affected
the overall performance of the economy and investors have the
tendency to stay with approaches that they are most comfortable with
and not try anything new (like online trading) while at the same time
investing less (sine investments involve risk). If the market picks up
speed, investors will change their minds. But, given the uncertainty in
global oil prices and other issues, including ballooning U.S. trade
deficits and the war on terrorism, investors are very unlikely to return
to online trading in the near future. However, they will do so as soon

- 67 –
as the market picks up and they once again become comfortable with
this new approach to trading.


• The Internet is drastically changing how everyone does business,

including the financial industry. Online investing has benefits to offer
investors as well as brokers. These benefits include low transaction
costs, convenience, speed, boundary spanning, improved
communication, and risk management. However, these benefits do
not come without costs. Some costs of online trading include
information-processing costs, unobservable costs, information illusion,
and smaller commissions for brokers.

• The characteristics of online traders are somewhat different from

traditional investors. Online traders tend to be males in their early
twenties to mid-thirties, with high income and education levels. Yet
this will be changing as more people gain access to the Internet and
start doing more everyday things online. Foreign investors will also
increase trading in U.S. stocks, and U.S. investors will begin investing
in foreign markets.

• Although online investing is gaining prominence, it will not be for

everyone. Some will not trust the security of trading online and others
will not have the time to do the research required and will prefer to
have traditional brokers invest for them. Overall, online investing will
only encourage new investors to trade in the stock market, bringing
together buyers and sellers to make the market more efficient. After
some of the kinks are worked out of online trading, it will tend to be
more beneficial to the financial industry in the long run without many
negative effects.

• Even though online trading has slowed down somewhat at the present
time, it is our belief that it will pick up speed in the future. Once
investors have become more comfortable with the current economic
conditions and foresee brighter economic conditions they will return.

- 68 –
- 69 –
Below is the analysis done while doing the study on Online Trading in India.

Ans.1 What is your education qualification?


The people who are dealing with the stock market either online or offline.
mort of them are graduate, 49%of the total respondent who are dealing with
the stock market are graduate, then 16% are post graduate and 22% people
is having professional degree. So here this is showing that qualification up to
graduation or more than that is in the favor of the online trading pattern

Ans. 2 What is your annual income?

- 70 –
- 71 –

58% respondent are having the income level of 100000-200000 ,21% is

having 200000-300000 , 12% in having 300000-400000 , 7% of the total
respondent are having income more than 400000 per annum and only 2%
are having less than 100000 per annum.

To invest in the stock market minimum 100000 or more than this should be
the annual income level of the people. In India the per capita income in also
increasing so we can say that there is a good opportunity for the online
trading market

Ans.3 What percentage of your monthly household income could be

available for investment?


According to the data 23% of the total respondent invest less than 5% of
their income, 41% respondents are saying that they invest 5%-10% of their
monthly income (which is highest) Whereas the 21% investor do the
investment 10%-15% of their total monthly income,13 invest between 15%-
20% of the total income and only 2% does more than 20% of their income
invest in the market

We can easily understand that 75% of the total population is having a good
amount of investment, so the investment is there in the market, good
number of people are ready to invest a good amount in the market 91% of
respondent is in the income level of 100000 – 300000 (according to the last
question analysis).

- 72 –
So we can say that stock brokerage houses will have to do a good business
with the help of Online trading system with few value addition services

- 73 –
Ans.4 Where do you often invest your money?


Highest number of respondent is having their investment in the equity that is

65% whereas the investment available for the mutual fund, term deposit and
insurance is 14%, 12% and 9% So the investor for equity is high which is
again showing the n number of opportunity for online trading

Ans.5 What is the primary objective of your investment?


13% of the respondent invests the money for the reason capital appreciation
but most of the investor is having same motive that is source of income and
retirement plan, wealth preservation and education funding for children or
other are only 10%

- 74 –
From the analysis we can have idea that the main objective of the investor to
earn the money through trading in stock market 77% of the respondent
achieves their objective with the help of investment in the equity market,
because most of the investment takes place in the form of equity
(explanation of 4th ans.)

So we can say that there is a huge potential in the market for the trading in
the stock market

Ans.6 Do you owe a Computer?


78% of the total respondent who are dealing with the stock market is having
computer in their house and only 22% is not having computer in their house

The people who is having computer that is 78% can also go for online trading
which can be a large number of people who will go for online trading they
don’t need to do a additional investment for computer to go for online trading

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Ans.7 To operate a computer is easy for me


76% (26+51) of the total respondent believe that operate a computer is easy
for me whereas 20%(13+7) of the respondent is having problem to operate a
computer out of that 20% , 75 believe that they can’t go for computer

So, if 78% of the people who are dealing with the stock market is having
computer at their house and around 76% of the same population don’t have
any problem to operate a computer

So around 60 % is there who is having computer and they don’t have

problem to operate a computer

Ans.8 Online trading is a secure way of trading?


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71% of the respondent is having a positive thinking that online trading is a
secure way of trading whereas 185 of the respondent believes that online
trading is not a secure way of trading Satisfaction about the process, by
which they will be going to do a trading that is online trading, should be there
in the mind of the customer.
If they believe that there is no risk over the money which they are going to
invest in the market with the help of online trading, there will be a perception
to go for online trading at least one time.

Ans.9 online trading is easy and fast way of trading?


51% of the total respondent believe that online trading is a easy task
Whereas 41% of the respondent believes that to deal with online Trading is
not a easy task and 85 was confused to anything about that the trading via
internet is an easy task or not.

There is a difference between the people who believe and who don’t believe is
not very big that is only 10% , the reason of this problem can be if a person
is doing its investment on its own he or she think of the problem of being
mistaken in the transaction. So there is a need of proper training to do
trading online.

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Ans.10 At what time do you trade?


45% of the total respondents do trading in office timing while 32% do trading
in non office timing and 23% of the respondents do the trading in free time

Here the people who do the trading in office timing they face the problem of
not in the continuous touch of the stock market, so online trading can be one
of the good solution of this problem.

Ans.11 Introduction of online trading helped to attract the new

Investors thus increasing the trading volumes at Stock Market?


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76% of the respondents believe that the introduction of online trading helped
to attract the new customer became the reason to increase the trading
volume of the market

On the other side 16% of the respondents believe that it doesn’t affect the
trading volume

Ans 12. What factor would you consider before choosing an account
in a brokerage house?


We calculate the value of cronbach’s Alpha to calculate how reliable the data
collected by the sampling

Reliability Statistics

Cronbach's Alpha Cronbach's Alpha Based on Standardized Items N of Items

.880 .875 21

we also look for that if the value of cronbach’s Alpha is more than average so
that data collected by the sample is showing the habit of the population the
data is representing the whole population we are having the value of
cronbach’s Alpha of 21 features that is .880 that is more than good , so here
we can say that data is reliable enough to go further analysis


In the descriptive statistics analysis we calculate the MEAN and STANDARD

DEVIATION Where low mean shows the average of the respondent who think
that these quality should be in the product and deviation showing the
differentiation in opinion of the respondent Low S.D. means small difference
in the opinion about the particular factor which should in the product.

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If we do the analysis the data through value, we will find that few features
are most important for the customer. These are Brand, Compliance system,

Regular delivery of contract notes, Efficiency at peak hours, Time to open an

account, Variety of products offered Helpline services, Guidance, Research
reports and Access to back office.

The mean of the given component is around 1.5 – 1.99. That is showing that
customer is looking theses component in the product.

S.D. of the product features Guidance, Variety of products offered, Efficiency

at peak hours, Brand, Compliance system, infrastructure is less than 1. Here
the respondent is not having different opinion about these components.


In the factor analysis we look for the few component and each component is
having 1 or more than 1 features of the product

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If we analyze the given Rotated Component Matrix and Component
Transformation Matrix we will find that there are six component are coming
and each of them component include one or more than 1 features in its own

If we talk of component 1 it include few features which are most important

while designing the product Variety of products offered, Time to open an
account, Brokerage charged, Customer services, Software, Research reports
and infrastructure

In component 2 it include four features of the online trading product that is

Efficiency at peak hours, Customer relationship, Market exposure, Helpline
services. In component 3 it include four features of the online trading product

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that is Effective execution, Regular delivery of contract notes. In component
4 there are three factor which are most important for the product and they
are Access to back office, Comprehensive stock trading portal, Employees
skill According to component 5 there is only a single feature which is Time to
open an account is important And the component 6 is also having only a
single product feature that is Recording confirmation. If we gone through the
all component of the product we will find that there are few quality or
features which a product like online trading should have.

These are Variety of products offered, Time to open an account, Brokerage

charged, Customer services, Software, Research reports

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The online trading is growing with a rapid pace with the rising level of
education among the customers. The other factors being that the Indian
Investor nowadays wants to deal himself in trading rather than depending
upon other middlemen. They also consider the factors like time saving in
doing the online transactions, convenience etc. Although some people feel
that online trading is not secure but the people doing the trading online is
happy about the increasing security concerns among the companies.

The year 2008 has not been so good for the stock market and the Sensex and
Nifty has been dipping and affecting the business negatively for these
companies but the same trend reversed in 2009 - 2010. This is due to the
fact that at these times people do not prefer to open the DMAT and Trading
accounts. So the companies have to reduce their account opening fees to
attract more and more customers. Also people trade very less in the bearish
market and the company’s profits against brokerage fees soars downwards. It
is also a found fact that during the bearish market the ratio of online trading
becomes very less. Also there is an intense competition among the
companies and the companies come up with new and new promotion
schemes such as discounted and negotiable brokerages, Zero balance
accounts, waiving a/c opening fee and AMC etc. As the internet penetration is
growing in India this business holds a huge potential for growth.

Now if the existing company will have to capture the market they will have to
look for the innovation in their product as well as service mix.

The mantra for success in the current situation will be educating the
customers about the benefits of online trading and the amount of ROI that
can be generated through it.

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The companies should come up with more and more innovative features in
their web portals.
• We came to know about most important factor about the product with
the help of factor analysis, so we should go for change the product
according to the customer need.
• We should also focus upon the value added services. Generally
company does claim that if you will by the product you will get these
benefits but company doesn’t provide the services here. So services
always does matter when we talk of ONLINE TRADING
• Company should also look for the problem which customer generally
face when they do trading (like problem of operating properly)
• The customer should be educated regularly regarding the new
technologies and techniques of trading online and also other relevant
• The companies should look after to develop more safe and secure
ways of transacting business online.
• The companies should make maximum efforts to detect fraud cases
and minimize them

- 85 –
- 86 –

My research project is quite relevant to the today generation of online trading

community. The following things can be useful for online trading community

• They should know their market position with other competitors.

• They should probe the broking company to get know some areas of
• The changing perception of market and the companies will also be
made clear.
• They should get the broking companies to do effective segmentation of
their market based their research analysis teams for better trading.
• Everyone should understand the effects & advantages of today’s
changing technology and should keep themselves abreast with the
changing & upcoming technology.

- 87 –

The last two months has been a great learning experience for me because I
came to know about many aspects of online trading which I didn’t know in
last 6 years of using the online trading facilities. Some of the learning of mine

• I improved my communication skills by learning how to talk to

different kind of people as it requires the different approach to handle
each person.
• I became aware about various aspects of working of stock exchange
• I learnt few things about back office work
• I learnt about the consumer perception about the stock market and
online trading.
• Patience was the thing I learnt the most as I have to approach various
persons to whom I had to explain same things again and again while
approaching or calling them at regular Intervals.

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