What is Trading - Types & Advantages of Online Share Trading
The Indian stock markets have changed a lot since the 1850s. Share trading was earlier done under a Banyan tree on Dalal Street. Soon, national stock exchanges were established where stocks were bought and sold via an open outcry system. You would have seen this in movies like Guru or The Harshad Mehta scam. Before 1995, physical shares were bought and sold. Investors had to rely on brokers to find buyers and sellers. Due to this, the settlement of shares used to take 14 days! But with dematerialisation, physical shares were converted into electronic form. The trading cycle reduced from 14 days to 2 days! Indian investors could buy and sell shares from the comfort of their home. All thanks to ‘Online Share Trading’.
In this article:
- What is Online Share Trading?
- What is the History of Share Trading in India
- What are the Types of Online Share Trading
- What are the Advantages of Online Share Trading
What is Online Share Trading?
Online Share Trading is buying and selling shares online through a trading platform. A trading platform is provided by a stockbroker. Apart from shares, you can also trade commodities, currencies, futures and options contracts.
What is the History of Share Trading in India?
- Share trading started in India in the 1850s. A group of five stock brokers started buying and selling shares under a banyan tree in front of the Mumbai Town Hall.
- Two decades later, a small group was formed at Dalal Street, named 'The Native Share & Stock Brokers Association.'
- In 1956 as per the Securities Contracts Regulation Act, BSE became the first stock exchange to be recognized by the Government of India.
- BSE Sensex came into existence in 1986 as a barometer with 30 stocks to measure the overall performance of the Bombay Stock Exchange.
- BSE switched to the electronic trading platform BOLT or BSE Online Trading Platform in 1995.
- Currently, the BSE is the 10th largest stock exchange in the world with a market capitalisation of 2.1 Trillion US Dollars
What is the Difference Between Online Share Trading & Offline Share Trading?
| Online Share Trading | Offline Share Trading |
| In online share trading, you can buy and sell shares via a web platform or trading app. | In offline share trading, you have to visit the broker’s office to buy and sell shares. |
| Buying and selling is done on a real-time basis. | There is a time lag which affects your buying and selling price. |
| The customer has full control on his trading activities. | The broker’s call and trade team is responsible for placing orders. This can lead to manual errors. |
| Customers can buy and sell freely without interference by biased brokers. | Biased brokers can influence customers buying and selling decisions. |
What is the Difference Between Trading & Investing?
You can do both trading and investing through your online share trading account. Trading refers to buying and selling shares for quick short term profits. Investing, on the other hand, is buying shares for long term growth. In trading, investors can hold positions for minutes to hours. But in investing, investors hold shares for more than 10 years.
Where are online share trading timings?
Online share trading is done through the secondary market i.e. stock exchanges. The National Stock Exchange (NSE) & Bombay Stock Exchange (BSE) are two main stock exchanges in India. Both NSE & BSE are open Monday to Friday from 9.15 am to 3.30 pm.
What are the Types of Online Share Trading?
With online share trading, the settlement cycle reduced from 14 days to 2 days. This led traders to adopt various types of online share trading to make quick profits.
Intraday
Intraday trading is also known as day trading. It is a short term investment approach where positions are closed on the same day. In intraday, traders buy and sell shares on the same day before the market closes. In intraday trading, a trader can hold a position from a few minutes to hours. Intraday trading is an investment strategy used by active traders. It allows them to earn quick short term profits. Intraday trading does not involve fundamental analysis. Traders look at the market sentiment of a particular stock and take short term positions. Intraday trading is highly risky. Only traders who can make quick investment decisions should consider intraday trading.
Delivery Trading
Delivery trading is also known as positional trading. It is a long term investment approach. Fundamental analysis plays an important role in delivery trading. In delivery trading, traders take long term positions in the stock. Delivery trading is suitable for both experienced and beginners. In delivery trading, investors are confident of the stock's future and do not mind temporary fall in share prices. Delivery trading is best for long term investors.
Short Selling
Short selling is a type of intraday strategy. In short selling, the position is closed before the end of market hours.
Example of a Short Sell: Assume that the share price of ABC Ltd is trading at Rs 200. You think that the stock will fall. So, you sell 200 shares at Rs 200 each. The total sell value is Rs 40,000. As expected, the share price fell to Rs 180. Now, you buy back the 200 shares at Rs 180 each. Your total buy value is Rs 36,000. So, you sold the shares at Rs 40,000 and bought it back at Rs 36,000. Since your cost price is higher than the sale price, you made a profit of Rs 4,000. Remember, it is not compulsory that you should have 200 shares of ABC Ltd in your Demat account to do short selling. The only condition of short selling is that you need to buy back the shares before the market closes. If you do not close your position, then the exchange puts a penalty on you.
In short selling:
- If the share price increases, then you will make losses.
- If the share price decreases, then you will make profits.
BTST (Buy Today Sell Tomorrow)
As the name suggests, BTST is buying a share today and selling it tomorrow before settlement. In India, settlement takes place in T+2 Days. So, if you buy a share on Monday, it will be deposited in your demat account on Wednesday. Now let’s try to understand BTST with this simple example. Mr Ram bought 500 shares of ABC Ltd at Rs 200/share on Monday. But the share price of ABC Ltd jumped to Rs 250 on Tuesday. Normally, Mr Ram will not be able to sell his shares on Tuesday as the shares will be deposited in his account only on Wednesday. But in a BTST order, Mr Ram can sell his shares before settlement and make quick profits. BTST order helps traders take advantage of short term volatility.
But you must be thinking, What is the difference between BTST and Delivery? In a delivery order, you can sell your shares only after the settlement is complete. But in a BTST you can sell your shares before settlement also.
What are the Advantages of Online Share Trading?
1. Online Share Trading is Highly Convenient: Online share trading can be done from the comfort of your home. You only need a Demat and trading account and an active internet connection for online share trading.
2. Online Share Trading is Cheaper: In online share trading, the brokerage payable is lower compared to the brokerage charged in physical share trading. Samco offers the lowest brokerage rates in India for online share trading.
3. Online Share Trading Eliminates the Middleman: Online share trading is 100% online. It has eliminated the need for a middleman. Your transactions are now directly from the exchange. Reduction of settlement period from 14 days to 2 days has reduced the overall trading costs.
4. Online Share Trading platforms help in portfolio monitoring: Through online share trading, you can track your holdings yourself. You can get information of your transactions at your fingertips. You can also place buy and sell orders without your broker.
5. Online share trading is easy to use: Traders do not have to be tech savvy to start online share trading. Anyone with basic computer knowledge can start online share trading.
6. Online share trading reduces errors: In case of offline trading, chances of errors are high. Since investors use call and trade facilities to place orders, there are high chances of miscommunication. This is eliminated in online share trading as the investor can himself place the order.
7. Online share trading provides access to research reports: In online share trading, you can get research reports & recommendations absolutely free of cost.
How to Start Online Share Trading in India?
To start online share trading, you need to open a demat and trading account. You should open a trading account with a SEBI registered broker only. A Demat account holds your shares in electronic form. Whereas, a trading account helps you buy and sell shares through the stock exchanges. You must have a valid pan card, bank account and proof of address to open an online share trading account. While it takes days to open a demat account with a traditional broker, a Samco Demat account can be opened within 5 minutes.
Conclusion
Like everything else, stock market trading also takes years of practice to master. The secret for successful online share trading is to have an in-depth knowledge about financial instruments and markets. You also need to practice your and also master the practical aspects of stock market trading. As the journey of a thousand miles starts with a single step, take the first step towards online share trading with Samco.
One of the highlights of the new-gen Samco trading app is a unique proprietary engine that thoroughly analyses past trades and trading patterns to generate multiple unseen insights or Andekha Sach. As a trader, you can use these insights to improve your trading performance and profitability. Open a trading account with Samco to know Andekha Sach of your trading.
Disclaimer: INVESTMENT IN SECURITIES MARKET ARE SUBJECT TO MARKET RISKS, READ ALL THE RELATED DOCUMENTS CAREFULLY BEFORE INVESTING. The asset classes and securities quoted in the film are exemplary and are not recommendatory. SAMCO Securities Limited (Formerly known as Samruddhi Stock Brokers Limited): BSE: 935 | NSE: 12135 | MSEI- 31600 | SEBI Reg. No.: INZ000002535 | AMFI Reg. No. 120121 | Depository Participant: CDSL: IN-DP-CDSL-443-2008 CIN No.: U67120MH2004PLC146183 | SAMCO Commodities Limited (Formerly known as Samruddhi Tradecom India Limited) | MCX- 55190 | SEBI Reg. No.: INZ000013932 Registered Address: Samco Securities Limited, 1004 - A, 10th Floor, Naman Midtown - A Wing, Senapati Bapat Marg, Prabhadevi, Mumbai - 400 013, Maharashtra, India. For any complaints Email - grievances@samco.in Research Analysts -SEBI Reg.No.-INHO0O0005847
Leave A Comment?