What is Online Trading: Meaning & Benefits | My Espresso

What is Online Trading?

As the name suggests, online trading is the exchange of financial instruments through a brokerage's internet-based proprietary trading platforms. Online trading facilities have increased dramatically since the late 90s with the introduction of affordable computers and high-speed internet. Stocks, mutual funds, bonds, ETFs, options, futures, and currencies can all be traded online.

Published on 19 January 2023

Online Trading Account Benefits

An online trading account features a wide variety of advantages, such as:

  • Significant Reduction in Cost of Financial Instruments

    Traditionally, if you planned to invest money in stocks, you had to call your brokerage firm and put in a request to buy stocks of a specific company for a given amount. The broker would then inform you about the market price of the stocks and confirm the order on the stock exchange. Online trading platforms provide a far more inexpensive experience as they eliminate the middlemen, decreasing the added price of commissions over these products.

  • Simple and Quick

    Online trading enables you to have a hassle-free and seamless trading experience from the comfort of your home or a café. There is no need to visit or call your broker to place or cancel trade orders. Today, you can invest in any asset class through a smartphone with the click of a button.

  • Complete Control

    One of the greatest qualities of online trading is that it gives you complete control over your portfolio. There are no chances of errors due to miscommunication between you and the broker because you can place or cancel trade orders without the broker's interference, managing trade transactions by yourself. You can download an array of mobile trading apps engineered to monitor your investments in real-time and take strategic decisions accordingly.

  • Access to Research Reports

    You can gain access to top reports, research recommendations, and expert analyses on stock prices based on various charts. There are different trading websites through which you can have discussions with research specialists as well. These resources can prove extremely useful when you need to make an informed decision.

  • Dedicated Customer Care

    One of the notable benefits of online trading platforms is that you can seek the help of dedicated customer care professionals in case of any problems or queries.

Getting Started with Online Trading

Follow these steps to open an online trading account in India and get started with your journey in the stock market:

  • Select a Stockbroker

    stockbroker provides facilities to open a Demat and trading account to use the online trading platform and store the purchased shares. There are two classifications of brokers in India: Full-Service Brokers, who charge fees depending upon the volume of trades, and Discount Brokers, who charge a flat fee irrespective of the trade volume. It is essential to check brokerage and all other applicable charges before selecting your broker.

  • Open a Demat and Trading Account Online

    Once you select the broker, you'll be required to open a Demat account and a trading account online. Account opening procedures can vary across different brokers. After submitting your documents, you will have your account activated in a few hours once all your personal and bank details are verified.

  • Start Online Trading

    After your account is set up and verified, you can transfer funds to it and start online trading.
    Also Read: Guide to Open Demat Account

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.

Is Online Trading Safe?

As long as you follow certain precautions, online trading is considered a secure means of investment. Here are a few safety measures that’ll keep you safe and worry-free so you can focus more on investing:

  • Know Your Stockbroker

    Research your online trading platform thoroughly, and do not ignore any red flags. It would be best if you referred to the list of Demat account providers on the official websites of NSDL and CDSL before sharing any of your personal information with a broker.

  • Go through the Privacy Policy

    No one likes to read tedious, lengthy policy terms. However, when it comes to online trading, reading the privacy policy clauses is a prerequisite to saving yourself unexpected trouble.

  • Don’t Trade on Public Computers

    Never place trade orders from shared PCs or cyber cafes. Make sure to log out after carrying out your trade in order to avoid any misuse of your account.

  • Check for SSL Protection

    If you find a small padlock icon in the address bar of the online trading website, it means the platform is protected by a Secure Socket Layer or SSL Certification. This is desirable to keep your transactions safe.

As the number of online trading platforms increases, the competition among brokers benefits the investor. Online platforms are doing everything they can to market themselves better and gain more users, including but not limited to making the trading experience more straightforward and profitable. This rarely happens in offline trading.

Chandresh Khona

Sharekhan Designation

Sharekhan Description