195CR1A6SA ONLINE TRADING

UNIT I

INTRODUCTION TO ONLINE TRADING

Mrs. R. Swarnalakshmi., M.Com. CS., M.Phil., Ph.D.,
Assistant Professor,
Department of Commerce with Corporate Secretaryship (CA)
Dr. N.G.P. Arts and Science College (Autonomous)
Dr. N.G.P.-Kalapatti Road
Coimbatore-641 048
Tamil Nadu, India

1
 Outcome

• Meaning
• Types of Online Trading
• Advantages and Disadvantages
• Online Stock Trading
• Working of On-Line Stock Trading.

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Coimbatore, Tamil Nadu, India 2
 INTRODUCTION
• Online trading is a fairly popular method of transacting in
financial products online. Brokers have gone online, with
their platforms providing all kinds of financial instruments
like stocks, commodities, bonds, ETFS, and futures.
• Traditionally, when a buyer wanted to invest money in
stocks, he used to call his brokerage firm and asked for
putting in a request to buy stocks of a given company for a
specified amount.
• The broker would then let him know the market price of
the stocks and would confirm the order.
• After the user confirmed his trading account, the broker's
fees and the time period required for the order, the order
would get placed on the stock exchange.
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 INTRODUCTION
• As is obvious, this method had multiple steps and was pretty
long drawn. Not surprisingly, online trading platforms have
taken over the entire trading landscape because of their
advantages:
• The users can open, manage and close accounts sitting at their
homes, working on a device with internet.
• Transactions can be made much more easily.
• Multiple financial products, which earlier needed to be bought
from specific places or banks, can now be bought and sold
online, which also reduces the the role of an intermediary and
saves time.
• The money used is real and the user gets to analyse and choose
from the various options of stocks and products available.
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 MEANING

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 TRADITIONAL VS ONLINE TRADING
TRADITIONAL TRADING ONLINE TRDING
Investor has no control on his The customer has full control on
DEMAT and trading a/c his DEMAT and trading a/c
It is a time consuming process. It is time effective.
Offline trader need to open Online investor can directly
separate account invest into IPO’s and Mutual
Fund.
Offline broker charges high Online brokerage charges less
amount as fees fees
Chances of fraud increases if you There is no chances of fraud as it
have offline account. is you who complete control over
your transaction
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 BENEFITS

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 BENEFITS
• It eliminates the middleman:
– You can buy and sell without even speaking to your
broker. This makes online trading alluring for someone
who does not have the finances to work with full-service
brokers.
• It’s cheaper and faster: 
– When a broker executes your trades, it costs you more
money. On the other hand, when you trade online, a
brokerage charge is levied but it is always less than what
a traditional broker who has to place a trade physically,
would charge you. Online trading is almost
instantaneous.
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 BENEFITS
• It offers greater investor control: 
– One of the most important advantages of online trading
is that it gives you greater control over your investments.
You can trade whenever you want with online trading
during the trading hours and you can also take your own
decision without any interference from the broker.
• You can monitor your investments in real time: 
– Your online trading platform has a lot of advanced tools
and interfaces to monitor your investing performance and
to do your own research. You can see real time gains or
losses whenever you login from your phone or computer.

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 TYPES OF ONLINE TRADING – Term wise

• Purchasing and selling stock on the same

DAY TRADING day.

• A trade period of more than one day to a

SHORT TERM TRADING few weeks is considered as short term
trade. Tax for Capital Gain 20% to 30%

• A trade period from a few weeks to a few

MEDIUM TERM
TRADING months is considered as medium term
trade.

• In this type of stock trading, stock is held

LONG TERM TRADING for many months to many years. Tax for
Capital Gain 5% to 15%

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TYPES OF ONLINE TRADING – Profit wise

• Purchasing and selling stock on

DAY TRADING the same day.

• This aims at is making small

SCALPING profits in a repeated fashion.

MOMENTUM • Traders make the most of the

TRADING momentum of a stock the
movement up or down.
SWING • It involves earning profits from
TRADING stocks over a few days of buying
them

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ADVANTAGES OF ONLINE TRADING

Lower Fees

More Control and

Flexibility
Ability to avoid
Brokerage Bias

Access to Online Tools

Option to monitor
investment in Real Time

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 ADVANTAGES OF ONLINE TRADING
• Lower fees:
– 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.
• Ability to avoid Brokerage:
– To eliminate brokerage bias. Bias sometime occurs
when a broker gives financial advice that benefits the
broker such as in the form of commission for selling
specific stocks.
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 ADVANTAGES OF ONLINE TRADING

• Access to online tools:

– Trading companies offer customers an impressive
suite of tools to help optimize trades.
• Option to monitor investment in Real Time:
– 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.

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 DISADVANTAGES OF ONLINE TRADING

Easier to invest too

much too fast
No personal
relationship with
Brokers

Addictive Nature

Internet Dependent

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 DISADVANTAGES OF ONLINE TRADING

• Easier to invest too much too fast:

– The securities and Exchange Commission warns investors
that although it takes just a nanosecond to make a trade,
real investment decisions require time. Before knowing
what hit them, they can end up losing a lot of money.
• No personal Relationship with Brokers:
– From getting help on how to create an investment strategy
to understanding how the results of feedback mechanisms
affects the market, online traders are left to their own
devices.

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 DISADVANTAGES OF ONLINE TRADING

• 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
behaviors.
• Internet Dependent:
– If the internet connection is too slow or is interrupted
you can lose out on a potentially important or
lucrative trade.

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 ONLINE STOCK TRADING

•When a company wants to raise money

for expansion, it “goes public” by making
an initial public offering (IPO) of common
stock. In its most basic form, this process is
how the stock market works for trading in
most companies.
•Once the offering is completed, the stock
price can move independent of the actual
company’s success. That will be traded in
the market and make transact in the market
in profit return.

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 WORKING OF ONLINE STOCK TRADING

• When you buy or sell a stock through online trading, you

order gets executed within seconds. But, within these
seconds lots of operations take place which you are
unaware, such as:
• Your order is registered.
• Your order is placed in a database
• It searches for a for a seller and when both buyer and seller
is matched, a confirmation message is sent to both the
parties.

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 WORKING OF ONLINE STOCK TRADING

• The order and the price are reported to the regulatory

bodies. These regulatory bodies look over all the trading
activities and are displayed to all the investors.
• Your trading records are stored in case regulators want to
study your past transactions.
• A contract is sent to your broker who sold the shares and the
broker who bought them.
• After all this, the brokers have 3 days to exchange the cash
and shares which is called settlement.
• After this process, the money or the shares are officially in
your account.

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 PROCESS OF ONLINE TRADING

• The buying and selling of securities can

only be done through SEBI registered
Selection of brokers who are members of the Stock
Exchange.
a Broker • The broker can be an individual,
partnership firms or corporate bodies.

Opening • The securities are held in the electronic

form by a depository.
DEMAT • Depository is an institution / organisation
Account with which hold securities.
• At present in indial there are two: NSDL &
Depository CDSL

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 PROCESS OF ONLINE TRADING

• The order can be placed to the broker either

Placing the personally / through phone, email etc.
• Investor must place order very clearly specifying
Order the range of price at which securities can be bought
/ sold

• As per the instruction of the investor the broker

Executing executes the order.
• The broker prepares a contract note for the order
the order executed.
• The Contract note is signed by the broker.

• This is the last stage .

Settlement • Two type of settlement done by the broker on

behalf of their clients. A) On the spot Settlement, b)
Forward Settlement

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 DO’S AND DON’TS IN ONLINE TRADING

DO’S DON’TS
Get rid of the junk Don’t Panic

Diversify Don’t make huge investment

Believe in your Investment Don’t chase Performance

Stick to your Strategy Don’t ignore Expenses

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