What is online trading?
Online trading means buying and selling stock through an online portal. This online portal is offered by stockbrokers. Online trading of stocks is done in real-time and there is no paperwork involved. You can simply buy or sell the stock with the click of a button either on your laptop or on your Smartphone.
What are the benefits of online trading?
Online trading has become very popular nowadays because of the various benefits that it has. These benefits include the following –
1. Online trading is convenient
The best feature about online trading of stocks is that it is convenient. You don’t have to physically visit a stockbroker to buy or sell stocks.
Some simple clicks of a button and you can trade in stocks as per your time and convenience. You just need an online account, an internet connection and a computer or a Smartphone and online trading would become simple and quick.
2. It costs less
Trading online saves on the costs involved in buying and selling stocks. When you trade online the commission payable to stockbrokers is low thereby helping you to save on the brokerage costs.
3. You can manage your investments easily
Your entire stock portfolio is at your fingertips on your online trading account. You can, therefore, assess and review your investments, buy or sell stocks, check the performance of your portfolio and then manage your investments as per your strategy with ease and convenience. This helps you to maximise your profits and reduce your losses.
4. You can control your stock portfolio
When you trade online, the record of your transactions is also available online. You can, therefore, have complete control over your portfolio. You can buy and sell any time that you want to as per your preference without having to depend on the broker and without any interference.
5. You can do instant transactions
Online transactions are done in real-time and as such, are instantaneous. The financial transactions are done instantly avoiding the risk of market fluctuations between the time that you initiate the buying or selling process until the time that the trade is carried out.
6. You get research reports for a better understanding of the stock market
When you have an online trading account, regular research reports are sent to you to give you an insight into the market. These reports are curated by experts and contain recommendations and analysis of different stocks based on their performance over the period. These reports, therefore, give you priceless knowledge about the nuances of the stock market and make you experienced in the art of online stock trading.
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How can you trade online?
If you want to trade online, there is a process which you can follow. This process involves the following steps –
1. Learn the basics of the market
Plunging into stock trading without proper knowledge of the market is like appearing for an examination without any preparations. Stock trading is a risky activity and unless you have knowledge of the way the market works, you can incur considerable losses. So, understand the basics of the market before you start trading in the stock.
2. Choose the broker
Trading on the stock market is possible only through stockbrokers who are registered with SEBI (Securities Exchange Board of India). You cannot trade yourself and so you should find a registered broker who is registered on all exchanges through which you can trade in stock.
3. Open a Demat account and a trading account
Just like you need a savings account to deposit and withdraw money from a bank, a demat account and a trading account are needed for stock trading.
A demat account is like a locker which stores the stocks which you buy online in dematerialized format. The stocks held in a demat account can be traded online.
A trading account, on the other hand, is an account through which you can trade in stocks. Thus, buying and selling of stocks would be done through a trading account while the purchased stock would be held in a demat account. Thus, the first step in online trading is to open an online demat and trading account.
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After you have learnt the basics of the stock market, selected the broker and opened a demat and trading account, you are ready to trade. You can buy and sell stocks as per your choice by clicking on the ‘Buy’ and ‘Sell’ button on the broker’s platform.
5. Get the settlement of securities
After you have completed trading, there would be a settlement of securities bought or sold during your trading activity. If the securities have been bought, they would be transferred to your demat account and if you have sold securities, such securities would be transferred out of your demat account. The transfer of securities after the end of the trading day is called settlement.
Settlement of securities can be done in two ways which are as follows –
a. On spot settlement:
Under this settlement, the transfer of securities is done immediately. The time period for settlement would be on a T+2 basis which means that for trading done on a particular day, the settlement would be done within two days of such trading. So, if you trade on Monday, the settlement of the securities bought or sold would be done by Wednesday under on spot settlement.
b. Forward settlement
As the name suggests, the forward settlement means that settlement of securities is done at a later date. This later date can be on a T+5 basis, T + 7 basis and so on. So, for trading done on Monday if the forward settlement basis is T + 5, the settlement of securities would be done by Friday.
Documents required for online trading
To trade online you would have to open a demat account and a trading account with an online broker. This account can be opened only if you submit your documents to the broker. The documents which would be required to be submitted include the following –
a. PAN Card
b. Aadhaar Card
c. Address proof like utility bills, registered rent agreement, sale deed of the property, passport, Aadhaar card, Voter ID Card, driving license, etc.
d. Bank details which include your bank statement of the last 3-6 months and a cancelled cheque of your bank account through which you want to trade
e. The mobile number which should be linked to your Aadhaar card
f. Passport-sized photograph
Once the documents are submitted with the broker, they would be verified and if everything is found to be in order, your online demat and trading accounts would be opened allowing you to trade online.
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Documents issued by the broker
When you trade with your broker, your broker is also required to issue certain documents to you. These documents include the following –
1. Contract note
A contract note is issued by your broker that shows your trading activities done on a particular day. The broker would issue a contract note within 24 hours of the completion of the trading activity and the contract note allows you to keep track of the trading that you have done.
2. Statement of funds
Your broker would also issue you a statement of funds showing the valuation of the stock held by you on a particular date. Statements of funds are sent either monthly or quarterly depending on the practice of the broker.
Things to remember before trading online
If you are a beginner in the stock trading domain, there are some things which you should remember before you start trading. These things are as follows –
A. Make a trading plan
Before you start trading, research the stocks in which you are interested and make a proper trading plan about the money that you would use to invest in stocks or the stocks which you intend to sell. Trading of stocks should be premeditated and should not be done on an impulse. Use research analyses, get recommendations from your broker, talk to your financial advisors and then plan your trading activity so that you can navigate the market fluctuations easily and without panic.
B. Use stock simulators before trading in reality
There are online stock simulators which allow you to practice trading before you actually start trading online. Practice your trading skills on simulators to understand the mistakes that you are making. Mistakes on simulators would cost nothing but if you end up making trading mistakes when you are actually trading, the consequences would be financially disastrous.
C. Invest what you save
While stock trading can promise good profit, it can result in substantial losses too. Stock trading is volatile and risky in nature and so you should only use your savings to invest and trade in stocks. Don’t make the mistake of borrowing for the purpose of investing and making a profit. You might fall in a debt trap. Risk only what you can afford losing so that even in a loss you don’t suffer financial consequences.
D. Be disciplined
As mentioned earlier, stock trading is volatile. Don’t let your emotions control your trading behaviour. Be disciplined when trading online. Ups and downs are a part of the game and don’t let them affect your trading. If your stocks suffer a loss, be patient for the market to correct itself. In case of a bullish market rein in your emotions and do not invest more than your savings.
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The 3-in-one account for online stock trading
You now know that you need to open a demat account and a trading account to do online trading of stocks. Moreover, there is a need for bank savings account too which allows you to pay for your stock purchases and receive credit for the sale of stocks. Keeping these requirements in mind, a 3-in-one account has become quite popular in the trading world.
The 3-in-one account combines a savings account, trading account and a demat account in one. It allows easy transfer of funds to and from your bank savings account to your trading account for your trading activities. Some common features of a 3-in-one account are as follows –
- Banks offer these 3-in-one accounts to their existing as well as new customers
- A brokerage is charged based on the transactions done using the account. The brokerage is either expressed as a percentage of the transaction value or it depends on the number and value of trading transactions that you do
- Many banks not only allow stock trading through their 3-in-one accounts but also trading of mutual funds, IPOs, derivatives, etc.
- Investment advise and recommendations are also offered by banks to their 3-in-one accountholders
- The brokerage charged for a 3-in-one account is usually higher than the brokerage charged by stockbrokers
How 3-in-one accounts work?
In a 3-in-one account, you get one trading account, one savings bank account and one demat account. When you do online stock trading and place an order to buy stock, the amount of money required to buy the stock gets debited from the bank savings account.
This money is, then, used to purchase stock and the purchased stock gets added to your demat account. Alternatively, when you want to sell your stock, you place a sell order and sell your stocks through your trading account.
This sale results in the withdrawal of the stock from your demat account and credit of the sale amount to your bank account. Thus, one single account provides you seamless facility of stock trading by handling your money, stocks and trading activities through the bank account, demat account and trading account respectively.
Furthermore, since a 3-in-one account is offered by a bank, you can use the account as a regular bank account. You would be issued a debit card and a cheque book allowing you to deposit or withdraw money from the 3-in-one account as and when you want without any restrictions.
Benefits of 3-in-one accounts
The benefits of 3-in-one accounts have been stated in the way these accounts work and their inherent characteristics. However, here is a quick look at the benefits which 3-in-one accounts offer –
- Since 3-in-one accounts contain three separate accounts which are essential for online stock trading, they eliminate the need of opening a demat account, trading account and a bank account separately
- They give you a single platform to trade online without having to link your bank account to your trading and demat account separately
- You can trade easily and conveniently as the trading activity gets coordinated within the different accounts of the 3-in-one account in real-time
- Banks offering 3-in-one accounts also offer expert advice to their account holders so that they can get the maximum benefit of the stock market
- Regular account updates and statements are sent to account holders enabling them to monitor and assess their transactions
- Since 3-in-one accounts also work like a bank account, they allow account holders the flexibility of using the accounts as their bank accounts without having to open a new bank account
- 3-in-one accounts serve multipurpose needs and are, therefore, suitable for online traders
Online stock trading is an easy way to trade on the stock market. It also helps you and your employees maximize their wealth. So, learn and educate your employees about the different aspects and benefits of online trading so that you and your employees can gain the benefits of stock trading with minimal efforts.
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