Class: Financial Management

Topic: Process of online trading in

India
Semester: I
Date:17-oct-2020
 Introduction
• Online trading is simply buying and selling assets
through a brokerage's internet-based proprietary
trading platforms. The use of online trading increased
dramatically in the mid- to late-'90s with the
introduction of affordable high-speed computers and
internet connections.  Stocks, bonds, mutual funds,
ETFs, options, futures, and currencies can all be
traded online. Also known as e-trading or self-directed
investing.
CONT……..

Traditionally, investors and traders have to call their brokerage firms to

make a trade for them. If John wanted to purchase 50 shares of Intel, he
would call his broker with a buy order request. The broker would let
John know the market price and confirm the purchase order. If the
investor is making a limit order, the broker has to confirm the limit price,
how long to keep the order open for, what account to purchase the shares
in (if John has multiple investment accounts), etc. The investment
representative must also confirm the commission costs for making the
trade. When all has been established, the broker would place the trade in
the system which is linked to trading floors and exchanges, such as the
New York Stock Exchange (NYSE) or the NASDAQ. The client would
receive a trade confirmation by mail and a monthly or quarterly
statement of account showing a list of his investments. If John wanted to
transfer some cash from his trading account to his checking account, and
vice versa.
 Advantages
• Lower fees
• One of the clearest advantages of online trading is the reduction
in transaction costs and high fees associated with traditional
brick-and-mortar brokerage firms.
• More Control and Flexibility
• Time is often of the essence when you trade stocks, so the speed
of using online trading portals is a benefit to many investors.
With online trading, you can execute a trade almost immediately.
• Option to monitor Investment in real time
• Many online trading sites offer stock quotes and trade
information that make it easy for people to see how their
investments are doing in real time.
 Disadvantages
• Easier to invest too much too fast
• Because online trading is so easy — you basically push a button
— there is the risk of making poor investment choices or
overinvesting.
• Online investors can protect themselves by understanding the
stocks they are buying and setting up safeguards in fast-paced
markets.
•  No personal relationships with brokers
• From getting help on how to create an investment strategy to
understanding how the results of feedback mechanisms affect the
market, online traders are left to their own devices. For some, this
kind of autonomy can be unsettling.
CONT……

• Addictive nature
• Online traders can experience a certain high when trading that
is similar to what people experience when gambling, according
to a recent study on excessive trading published in the journal
Addictive Behaviours.
 Process of Trading
• Firstly, you need to open a Demat account. As you may know,
this is the account that holds all your investments – equities,
commodities and other investments. Demat account is provided
by brokerage houses, so you need to find a good broker and
open the account. Make sure the brokerage house is registered
with SEBI. You should also check the brokerage charges and
other charges the firm charge for their services. You will get
the trading platforms, a trading account with it for trading.
• Secondly, you need to learn the basics of the market. You must
understand and able to predict market movements. For the
same, you can take up online classes, or some trading courses,
and also read yourself from online portals.
CONT…….

• Thirdly, you need to put your learning in action. By this, we

mean you need to practice what you learned. Before entering
the market with real money at stake, it is better to practice with
some demo accounts and virtual money. There are different
stock simulator which can help you practice trading. Since you
are not investing any real money, there is no fear of losing any.
• Finally, you need to plan your trading strategies. You need to
decide the investment goal, investment budget and the result
you want. Accordingly, you need to set the investment strategy.
 Do’s
• Ensure that you reset your password and insist on dual authentication
for accessing your trading account. Ensure that you regularly change
your password to reduce the chances of hacking into your trading
account.
• Ensure that your bank account, trading account, and demat account are
linked in one seamless chain. This will ensure that the debits and
credits to the bank account and the demat account happen effortlessly.
• Ensure that you reset your password and insist on dual authentication
for accessing your trading account. Ensure that you regularly change
your password to reduce the chances of hacking into your trading
account.
• Ensure that your bank account, trading account, and demat account are
linked in one seamless chain. This will ensure that the debits and
credits to the bank account and the demat account happen effortlessly.
 Dont’s
• Trading online is not just a privilege and convenience but also a responsibility
to safeguard your interests. Here are some quick don’ts to keep in mind.
• Don’t share your password or security codes with anyone else. Avoid letting
even your family members access your trading account and execute trades on
your behalf. Only you must operate your trading account.
• Don’t set obvious passwords. Your name, date of birth, and marriage
anniversary are classic giveaways. Try to complicate your password by
including uppercase, lowercase, alphabets, numbers and special characters to
add levels of security.
• Be it internet trading or app-based trading, never access your trading account
from a public place. Using a cyber café or unsecured public wi-fi to trade is
not a smart thing. These spots can be easily hacked and your account could get
compromised.
• Don’t forget to keep an offline record of key documents such as contract notes,
ledgers, profit statements, and capital gains statements. These can be useful in
case of any disputes or legal questions you may have to address.
 Players in online trading
Rank Broking House
1 Zerodha
2 Angel Broking
3 IIFL / India Infoline
4 Motilal Oswal
5 Sharekhan
6 Upstox
7 ICICI Direct
8 Edelweiss
9 HDFC Securities
10 5Paisa
Scam in online trading
•  1992 Harshad Mehta scam
• The 1992 scam was the biggest stock market scam ever
committed in the Indian Stock Market, the main perpetrator of
which, was a well known stock broker Harshad Mehta. It was a
systematic stock fraud using bank receipts and stamp paper
which caused the Indian Stock market to crash. A complete
structural change of the security system of India ensued. The
scam exposed the inherent loopholes of the Indian financial
systems and resulted in a completely reformed system of stock
transactions and an introduction of online security systems.
 
Reforms After 1992 scam In India
• The security system of India took a rapid reform in its fundamental
structure post the 1992 scam. The first major structural change was the
formation of the National Stock Exchange of India(NSE). The first major
reform in the financial sector of India was the formation of CII Code for
Desirable Corporate Governance developed by Rahul Bajaj. The formation
of this code paved way for two major committees headed by 
Kumar Mangalam Birla and N. R. Narayana Murthy which was overlooked
by the Securities and Exchange Board of India. These committees were
formed to look after corporate governance as the 1992 scam was based on
the principles of corporate governance.Post 1992, a new regulatory board
known as the Securities and Exchange Board of India was formed to
monitor the National Stock Exchange and the National Securities
Depository. There were structural changes in the equity market. The
government introduced ten acts of parliament and one constitutional
amendment based upon the principles of economic reform and legislative
change for the equity market. The NSE introduced online trading in 1994
which changed the dynamics of stock buying and selling. 
 
What is Algorithmic Trading?
 
• Algorithmic trading is a process for executing orders utilizing
automated and pre-programmed trading instructions to account for
variables such as price, timing and volume. An algorithm is a set of
directions for solving a problem. Computer algorithms send small
portions of the full order to the market over time.
• Algorithmic trading makes use of complex formulas, combined with
mathematical models and human oversight, to make decisions to buy
or sell financial securities on an exchange. Algorithmic traders often
make use of high-frequency trading technology, which can enable a
firm to make tens of thousands of trades per second. Algorithmic
trading can be used in a wide variety of situations including order
execution, arbitrage, and trend trading strategies.
  
KEY TAKEAWAYS
• Algorithmic trading is the use of process- and rules-based algorithms to
employ strategies for executing trades.
• It has grown significantly in popularity since the early 1980s and is used by
institutional investors and large trading firms for a variety of purposes.
• While it provides advantages, such as faster execution time and reduced
costs, algorithmic trading can also exacerbate the market's negative
tendencies by causing flash crashes and immediate loss of liquidity.
• Introduction In India allowed algorithmic trading only in 2008, but algos
control nearly a third of all trades already. In the West, where the
phenomenon first surfaced nearly three decades ago, algos were running
about 50% of US equity trading volumes by 2012. In the foreign exchange
markets, which run 23 hours a day, algorithms account for 80% of the
trading volumes
Group member are:
• PUNEET SHARMA
• POONAM KUMARI
• PRIYANKA NAGARAJAN
• SAAYANA S. PRAKASH
• NISHANT KOHLI
• RUDRAKSH PARE
• SANJAY SUNIL TOM
• ROHAN MORE

THANK YOU ALL OF YOU