Online Share Trading

These days online share trading has become as simple as online shopping. Just as you place orders to buy a product on a shopping website, you place an order to buy shares from your trading terminal. Buying shares online has become a lot simpler because we have access to the internet. But, many of us are still not aware of what is online share trading? And how does online share trading work?

Today we will decode everything about online share trading in detail.

In this article:

What is Online Share Trading?

Online share trading is similar to any other business. Just as you buy goods from a vendor, similarly, you buy shares from the stock market. This process of buying and selling shares using the internet is called online stock trading. Here, you buy and sell shares of companies listed on the Indian stock exchanges.

Online share trading has made the process of buying shares a lot simpler. Before the online share trading process was introduced things were a bit rigid. During those times, you had to constantly inform the broker to place orders for you which made you dependent on them. But with the introduction of online trading platforms you can now trade independently from the comfort of your home. Moreover, as you are placing and tracking orders on your own, there is less scope for errors.

To conduct share trading online you just need three things – an internet connection, a Demat and trading account and a mobile or a laptop with a trading terminal. If you have these three things, then you can travel anywhere around the world and still make money by trading online.

Now, there are two leading stock exchanges in India which facilitate online share trading in more than 5,000 listed companies -

Now that you know what is online share trading, you might be wondering how online stock trading actually works?

How Does Online Share Trading Work?

When you place a buy order on your trading terminal, the order might get executed in just a few seconds. But, the behind the scenes of the online share trading process is quite interesting.

Let’s find out.

Once you place a buy order on your trading terminal, your order gets saved in the exchange’s database. It then finds if there is a seller selling the same stock at the same price. Once the exchange finds a seller, your order is executed.

After this process, you have three days to settle the trade. So, the shares are credited into your Demat account and the money is debited from your trading account and transferred into the sellers trading account.

That’s exactly how online share trading works.

Now, let’s take a look at the step by step process of how could you start with your online share trading process.

Process of Online Share Trading

There are 12 steps in the process of online share trading.

Step 1: Open an online share trading and Demat account

The first prerequisite for share trading online in India is having an online trading and Demat account. Using this account, you will be able to buy and sell with ease. Opening a Demat account is a matter of 15 minutes. So, to get started on your trading journey all you need to do is open a trading and Demat account with Samco, India’s best equity stockbroker.

Step 2: Research, discover and decide to buy and sell a share

Now, the biggest challenge any trader faces is finding the ideal stock for intraday, swing and positional trading. For instance, if you wish to trade intraday, you will have to find a stock which is volatile enough and also has a considerable bid and ask spread. Not just that there are many other factors to check. So, in such situations, traders often get confused about which stock they should choose among all the listed stocks in the market.

Let’s say after researching for a few days, you have found the right stock. But the next challenge trader’s face is to figure out when to buy and sell a particular stock. For this you need to learn various trading strategies. Don’t worry. Here is a consolidated playlist you can watch which will help you learn different strategies for intraday, swing as well as positional trades.

Step 3: Transfer funds to your trading account

Now to trade in any stock, you need to keep the required balance in your trading account. This money will be used as margin for trading. If you are an intraday trader, then you also get leverage on the deposited money.

But how do you transfer money in your trading account?

If you use online modes of payment such as IMPS or UPI, then you can transfer money instantly. Other modes of transferring money is through payment gateways like NEFT and RTGS. This could be done easily through your mobile banking app or by visiting a bank branch.

The third way is to issue a cheque to your broker and the money will be credited in your trading account in three to four working days.

Check out the step by step process of transferring funds to your trading account.

Step 4: Place an initial order

The next step in online share trading is to place the order based on the trading idea generated by you. This can be done easily by logging into your trading terminal. Check out the detailed steps on how to place an order on the Samco App.

If you are still facing difficulty in analysing which stock to trade, then you can simply use KyaTrade. It is a unique platform which provides instant high-quality intraday trading ideas at your fingertips. Not just that it also tells you that when should you buy a particular stock and when should you sell it.

To know more about KyaTrade – Click here.

Step 5: Order matching by the exchanges

Here comes the role of the stock exchanges. Just like I had mentioned earlier, in online share trading, once you place an order, the order gets executed into an actual trade on the stock exchanges once a suitable counterparty is found.

For each buyer, there needs to be a seller and vice versa. Exchanges match orders based on price, time and quantity priority. So, first prices are matched, then the time of placing the order is checked and finally quantities are matched.

Step 6: Settlement of transaction

Online share trading has drastically reduced the settlement cycle. Once an order is executed into a trade, the settlement of trade happens depending on the settlement cycle of the instrument. Stocks get settled on T+2, whereas derivatives transactions are settled the same day. Samco is one of the only brokers in India that allows customers to pay for stock purchases in two days after the purchase (T+2 days).

Once you buy stocks on a particular day, they are credited to your Demat account in the next two working days.

Step 7: The post trade movement in price of share

This is the holding period of a trade. Once you buy a stock, you’d like it to move upwards over time and vice versa if you are a seller. There are different types of traders with different holding periods. More on this later.

Step 8: Decision to exit a trade

This refers to the process of exiting a trade. The exit decision decides the realization of your profits or losses for each trade. There are various factors that could drive the exit trade – booking profits as the stock meet your price expectations, forceful exit because the stock hit the stop loss, exiting for better opportunities or simply exiting because the trade did not play out as visualized.

Step 9: Placing the exit order

If you feel that the stock has reached its target price, then you place an exit order. The steps for placing an exit order are similar to that of placing an entry order.

Step 10: Order matching by the exchanges

Similar to the initiation leg, the exit leg order gets matched by the Stock Exchanges and gets converted to a trade.

Step 11: Settlement of transaction

Similar to the initiation leg, the settlement of transactions happens in three working days. In case you have sold your stocks, your stocks shall be debited from your Demat account linked to your trading account and the funds shall be credited to your trading account.

Step 12: Bank account credited with capital and realized profits/losses

Once your trading account is credited, you can place a request to withdraw funds from your trading account. This shall include your initial capital as well as your realized profits/losses.

Chronological sequence of events highlighting how to make money through online share trading:

The above example was an illustration of the chronology of events detailing how you could make money in online share trading by buying shares, holding them for some period of time and then selling those shares at a profit. However, there are multiple approaches to making money in online share trading.

You could trade across different time periods - a few seconds, a few minutes, a few hours, a few days, few months or few years. Traders with different time horizons have different strategies and are popularly referred to by different names. This is an illustrative but not exhaustive list.

Types of online share trading

As you can see, the 2 primary objectives of trading are either to create an income by active trading or to create wealth over a period of time by passively investing.

Now let’s come to the question we all have thought of… How to be successful in online stock trading? Is it even possible? Yes, it is. Let’s quickly check the process.

How to be Successful in Online Share Trading?

In order to be successful in online share trading, the first and most important thing is having a set of rules.

As a trader or investor, while we may initiate trades to make a profit, no one knows how the market will actually unfold and play out. Therefore, it is extremely important to have and follow a set of rules for a successful online share trading experience.

In this section, we will try and lay out a template of the kind of rules that traders must have to be successful in online share trading. These rules will not only help traders become successful in online share trading but will also help them navigate the markets in case anything goes wrong.

Market Activity Data (Robo Content)

• Traded Value (Rs. In Crores) : 44277.64
• Traded Quantity (in Lakhs) : 18636.63
• Total Market Capitalisation (Rs. Crores) : 24313175.32

Rule #1: Build a trading strategy

In online share trading, it is important to identify a trading strategy and then practice the implementation of that strategy day in and day out. You could choose from a variety of strategies – breakouts, breakdowns, large candle moves. What is important is that you select a strategy that suits your psychology. You can check the list of trading strategies I had mentioned above, practice and stick to the one which suits you.

Not just that, you must also analyse the best time frame to trade as per your trading strategy. Watch this video to understand which the best time frame to trade is.

Rule #2: Identify entry points of trades identified with the trading strategy

Once you decide on a strategy, it’s important to identify the entry levels and exit levels of each stock. In online share trading, one must be very careful not to chase stocks. Don’t go out and buy a stock just because it is moving away from your identified price. Be patient and only enter a stock once your ideal entry level is reached.

Rule #3 : Identify a strict stop loss for each trade

One of the most important rules in online share trading is having a stop loss. There is an old saying ‘Cut your losses and let your winners run’ which means that a trader should be quick to cut their losses in case the trade goes against the direction that they were hoping for. You can deploy either a static stop loss or a dynamic trailing stop loss.

Rule #4 : Identify an exit strategy for your trades

Along with an entry and stop loss rule, another important rule for successful online share trading is to have an exit strategy in place. There could be a variety of ways in which you could identify an exit price for your trade. It could be based on a certain pattern identified at the time of a trade, or by way of a trailing stop loss, or could be a fixed percentage stop loss say, - 20%, -30% or -50% gain. Your exit strategy is key to determining your profitability in online share trading.

Rule #5 : Risk management by sizing your position correctly

In online share trading it is critical to decide the correct quantity for your trade. This is because if you go overboard on a particular trade, it could completely wipe out your trading capital. If you are simply trading stocks, you must not invest more than 15% of your capital in a single stock. If you are actively trading, you must not risk more than 2% of your trading capital in a single trade.

Rule #6 : Don’t blindly follow advice without understanding the rationale or doing some homework yourself

Every time you initiate a trade, make sure you are aware of the underlying rationale for that trade. Do not simply enter a trade based on hearsay or just because you saw an expert advising an idea on TV without digging deeper. Understand the why of each trade before you start online share trading.

Rule #7 : Write and document your trades in a trading journal

Create a trading journal and record your trades. Keep reviewing your trades from time to time and check the trades initiated against your trading plan. Modify your trading strategies and plan based on your findings.

Rule #8 : Be Patient and disciplined

A trader will not make money every day. There will be some profitable days and some loss making days. It is important to understand that losing is a part of online share trading and a trader should not let short-term losses affect them.

It is important to follow your trading plan perfectly and avoid constant churning based on a few months of underperformance. It’s important to be patient and disciplined. If you are patient and disciplined in stock trading, then the chances of being hugely successful are very high. What is important is that you let your profits run and make profits month after month and not lose too much money by holding onto losers. This will make sure that you stay in the game and make money over the long run. Trust me if you follow these steps in your trading journey then you will surely make exponential profits!

Check out our free video on the 10 golden rules for trading and investing in the stock market for beginners.

Samco Securities offers India’s best online share trading experience!

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