What is Trading - Types & Advantages of Online Share TradingThe 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.
IntradayIntraday 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 TradingDelivery 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 SellingShort 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.