How do I start trading stocks online?
PROCEDURE OF ONLINE TRADING OF STOCKS
Following are the steps involved in online trading of stocks:
1. Selection of a Broker: When a person wishes to trade in the stock market the first task he/she needs to do is selection of a broker, because the transactions in the stock exchange can only occur through a broker or a sub-broker.The work of a broker is transfer of order electronically from the investor to the exchange. Any transaction that occur in stock market taken care by the stock exchange. Normally in India the stock exchange for trading is active from 9:15 AM to 3:30 PM. However from 1st October 2018 SEBI has decided to extend the trading hours till 11:55 pm in a move to attract the investors dealing in India products on overseas exchanges.
2. Opening Demat Account: Second step in trading procedure is to open a Demat account in the name of the investor. Demat (Dematerialized) account refer to an account which an Indian citizen must open with the depository participant to trade in listed securities in electronic form.
The minimum requirement for opening a trading account is PAN card and bank account failing to which the account cannot be opened. The securities are held in the electronic form by a depository. Depository is an institution or an organization which holds securities such as Shares, Debentures, and Bonds etc.
At present in India there are two depositories: NSDL (National securities depository Ltd.) and CDSL (Central depository services Ltd.). There is no direct contact between depository and investor. Depository interact with investors through depository participants only.
3. Placing the order: After opening the Demat account, the investor will actually place an order to buy or sell shares to the broker either personally or through phone, email etc. The order will be placed with his broker or the individual can transact online if the broker provides such services. One thing of essential importance is that the order/instruction should be very clear.
Example: Buy 100 shares of XYZ Co. for a price of 140/- or less. Then the brokers will act according to your transaction and place an order for the shares at the price mentioned or an even better price if available. The broker will issue an order confirmation slip to the investor.
4. Executing the order: Once the broker receives the order from the investor he executes it. For this the broker charges an amount. Normally in an electronic platform for execution occurs automatically. Within 24 hours of this the broker must issue a contract note. This document contains all the information about the transaction like the number of shares transacted, the prices, date and time of the transaction, brokerage amount etc.
Contact note is an important document. In the case of a legal dispute, it is evidence of the transaction. It also contains the Unique Order Code assigned to it by the stock exchange.
5. Settlement: The settlement is done by the clearing agency which functions in each stock exchange. The clearing agency deliver the share certificates by the end of the day. Here the actual securities are transferred from the buyer to the seller. The funds will also be transferred. Here too the broker will deal with the transfer.
See more: What Is the Stock Market, What Does It Do, and How Does It Work?
There are two types of settlements:
- On the spot settlement: Here funds are exchanged immediately and the settlements follows the T+2 pattern. So a transaction occurring on Monday will be settled by Wednesday (by the second working day).
- Forward settlement: Simply means both parties have decided the settlement will take place on some future date.
Advantages of Online Trading
1. It is simple: It enable a trade to have a hassle-free trading experience. Anyone can use these platforms as specific skill is not required to carry out trading online.
2. It is less expensive: It is less expensive as compared to traditional mode of trading Brokers also promote online trading as it reduces maintenance and other costs incurred by the broker.
3. Quick and less time consuming: Trading can be done in seamless manner and in less time. Before the advent of online technologies, trading was a cumbersome process as you have to visit the broker or call your broker for placing or cancelling trade orders. Now you can carry out trading event through a smartphone in the simplest way.
4. Complete control: It allows you to have complete control over your portfolio. You can place trade orders from anywhere any time. That is the kind of flexibility you get due to online trading.
5. Chances of error are less: In case of traditional offline trading, there were more chances of errors due to miscommunication between the traders and brokers. But in online trading, you can place trade orders or cancel without broker’s interference and hence can manage trade transactions yourself.
6. Monitor investment at all times: You can monitor investment anytime. There are mobile trading apps that can be downloaded in your smartphone which help you stay in touch with the markets and also monitor your investment anytime and take proper strategic moves accordingly. Loss making stocks can be removed and profit making stocks can be added to your portfolio by observing the way the market moves.
7. Access to research reports: You can get access to top research recommendations, reports, analysis on stock price based on various charts. There are various brokerage websites through which you can have discussions with research experts as well. You can take the best move with the help of the financial advisors too.
Safety measures to be taken in case of online trading
- Trade orders should not be placed from shared PC or cyber cafés.
- Always log out after carrying out trade in order to avoid any misuse of your account
- Personal computer have to be protected against viruses by installing anti-virus solution.
- Do not click on “remember me” option when you sign in to your trading account from a different location.
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