What is Online Trading & How Does it Work? | Espresso

Online Trading: How does Online Trading works in Stock Market?

Several years ago, trading in the stock market was exclusively carried out offline in the stock market. Shares were sold and bought between traders, and a trading account was non-existent. It was only once trading became a digitalised process did online trading, also known as electronic trading, became popular.

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For obvious reasons, online trading has a set of benefits and advantages over offline trading. Firstly, you will have access to an online trading account that will help you make smoother transactions. In addition, for traders wanting to hold their shares for a longer period, an online demat (dematerialisation) account serves as a safe place for the shares purchased.

Additionally, renowned brokers offer several stock trading platforms with various knowledge resources for new traders and investors to find their way through the stock market.

However, even though online trading is convenient and saves a lot of time, many newcomers in the market need a helping hand where online trading is concerned. If you are among the ones who would like to know more, here is how it goes.

What is Online Trading and How Does it Differ from Offline Trading?

As you’re familiar with the offline trading process, you can see how much time it can take for a trader to find a match for the stocks they want to purchase. Also, all the trades need to be documented so that traders can check their past trading activities and form new strategies for better trades.

Additionally, maintaining a record of all the statements on a monthly basis can become quite cumbersome if the process has to be carried out offline.

This is where online trading has revolutionised the stock market. With all financial products available online, traders and investors can simply create an account with the help of their broker, pay the brokerage fees, and start trading in the stock market. One can also trade in bonds, commodities, futures, etc., as online trading offers these options.

In online trading, with just a few clicks, the trader can select the stock of their choice, input the number of shares they would like to purchase, and then buy it. The trading account can be linked to a bank account or be used to retain funds for trading.  The trader can also receive a monthly statement of all their transactions, which increases transparency in online trading.

How Does Online Trading Work?

In online trading, a trader needs to place their order for a stock on the online platform offered by their stockbroker. Once the order is placed, it is then saved on the trading platform and the exchange platform.
Also Read: Foreign Exchange Market

The platform then uses this information to seek out sellers of the stock on all platforms and comes up with the results of the price available for the stock’s purchase.

Here, if the price that has been sought out matches the price set by the trader upon confirmation of the order, then both parties make the exchange. Once the purchase is complete, the online stockbroking firm will settle the payment in three trading days and the money will be transferred to the trader’s account.

Online trading platforms are not only more cost-effective as compared to offline trading but are also quick and convenient, given how such a long-drawn process can be completed in a matter of minutes!

Moreover, stock trading platforms also offer stock updates and market news that help traders and investors understand the general market sentiment and make their trading decisions accordingly. This is what helps the whole online trading process move smoothly.

Conclusion

Online trading has not only simplified the trading process but also allows the trader to open, close, and manage their account from mobile devices, laptops, tablets, etc. While the trading hours are limited to the market timings, it is possible to manage the trading account or add funds to it anytime, anywhere!
Also Read: How to Transfer funds into your Trading Account?

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Frequently Asked Questions

For online trading, you will need to have a trading account and a demat account (for holding the shares) with a reputable stockbroker. Once you have opened the accounts with the help of the stockbroker and the relevant documents, you can add money from your bank account to the trading account and start trading in the stock market.

Online trading is very safe and secure since stockbrokers ensure that all the transactions and data are protected on the stock trading platforms. Therefore, it is always advisable to select a reputable stock broker so that you can ensure safe online trading through their platform.

Safe stock trading platforms also ensure that the transactions and processes are smooth so that the trader does not lose their opportunity and any potential profits.

While online trading is more convenient than offline trading, it cannot be easy for someone who is new to the stock market and is still learning how to trade. However, the resources provided through online trading can help newcomers in the market.