Online trading is basically the act of buying and selling financial products through an online trading platform.
What is Online Trading?
- Online trading is basically the act of buying and selling financial products through an online trading platform. These platforms are normally provided by internet based brokers and are available to every single person who wishes to try to make money from the market.You can place trade orders or cancel orders at your will from the comforts of your home. It allows you to make your own decision with regards to trading without any interference of the broker. You can buy shares or invest in IPO or buy mutual funds as well.
- Online trading can be done by simply opening a demat and trading account with any SEBI registered broker. Account opening can be done in a matter of 15 minutes. The documents required to open an account are PAN card, address proof, AADHAAR card, mobile number linked to AADHAAR, bank statement, cancelled cheque leaf and passport photograph.
Advantages of Online Trading
It is simple:
It enables a trader to have a hassle free trading experience. Anyone can use these platforms as specific skill is not required to carry out trading online.
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.
Quick and less time consuming:
Trading can be done in a seamless manner and in less time. Before the advent of online technologies, trading was a cumbersome process as you had to visit the broker or call your broker for placing or cancelling trade orders. Now, you can carry out trading even through a smartphone in the simplest way.
It allows you to have complete control over your portfolio. You can place trade orders from anywhere anytime. That is the kind of flexibility you get due to online trading.
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 by yourself.
Monitor investment at all times:
You can monitor investments 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.
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 financial advisors too.
Precautions for Online Trading?
As any prudent investor or trader, you need to take some basic precautions while trading online. Here are a few of them:
- Use dual authentication for your trading account and do not leave your trading account unattended and logged in while you are off your seat. Make it a point to log out of your session when you are not there on the seat.
- Ensure that your computer is equipped with an anti-virus protection as well as an anti-malware protection and get it updated regularly. If you allow your PC or laptop to be hacked, then you could lose precious trade data to hackers.
- Make it a point to change your trading password every 15 days. This will ensure that the chances of your account being hacked into are almost zero. Additionally, don’t set your password as obvious codes like your name, date of birth or marriage anniversary. Use complex characters to make your password difficult to figure out.
- Never access your online trading account from a cyber café or even from a public Wi-Fi system. These are normally not secure connections and you risk your account being hacked.
- Always use only your personal computer and do not share the computer with anyone else.
- If you find that the computer has slowed down or is opening multiple windows unnecessarily just shut your system and don’t use it for trading unless you have got the help of a hardware expert and got the problem resolved. Your system could have been compromised.
Online Trading vs Traditional Trading
- In the past, investors would call their broker to make a trade for them. They could either visit or telephone their broker. In fact, there was no other choice.
- In the 1970s, for example, if I wanted to buy 100 IBM shares, I would call my broker. I would then place an order request. The broker would let me know what the IBM share market price was, and confirm the order to buy.
- In the past, the whole procedure was relatively lengthy. The broker would confirm how long to keep the order open, which account to draw money from, etc.
- Today, with online trading, it is a do-it-yourself world. In other words, online traders can buy and sell financial securities on their own. In fact, they can even carry out multiple trades with nobody else’s help.
- Most importantly, the modern online trader can do all these things rapidly. In fact, almost instantly.
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