What do you mean by the term “online trading”?
When the process of purchasing and selling financial products such as mutual funds, stocks, derivatives, or bonds is facilitated by an online platform it is referred to as online trading. It is as simple as that. Put simply, online trading implies logging into your Flipkart or Amazon account and purchasing items.
For this, you will require the Internet, a laptop or mobile, and some cash for trading. It will be feasible for you to trade from any location and at any time you like. This happens to be the essence of online stock trading.
It will be imperative to learn the functioning process of online trading in order to understand it comprehensively. Besides this, you also need to know the pros and cons of online trading which we have mentioned in the following paragraphs.
Advantages of online trading
- Convenient and simple
It is a fact that everything you do online happens to be quite simple and convenient. It will be possible for traders to have a hassle-free experience with the help of online trading. For this, you simply need to have a stable Internet connection and that’s all. In this way, it will be feasible for you to save lots of effort and time in the long run.
- More affordable
You need to pay fees to the broker once he helps you to execute your trades. On the other hand, you are going to pay a fee while trading online that is much lower as compared to the fees charged by the broker.
- Track investment at all times
It will be feasible to monitor investments at all times with the help of websites and mobile apps. You will be able to see real-time losses and gains and make quick decisions on the stocks that you would like to keep or sell.
- Total control
You will be capable of having total control of your personal portfolio with the aid of online trading, and this will enable you to control your own investments in a better way as well. Now, it will be possible for you to trade anytime during the market hours and you will be able to take your own decisions without interference from any broker.
Disadvantages of online trading
- During volatile periods, online trading platforms are susceptible to technical flaws.
- The beginners might take some time for becoming acquainted with sophisticated trading platforms.
How is online trading going to work?
After having an answer to the query, what is online trading, it is now time for you to learn the functioning system of online trading.
The order is going to become executed almost instantly once you end up buying or selling shares. Below, we have mentioned the steps in which the job is done.
- After a sell or buy order is placed by you, it is going to match with the best sell or buy price and the trade will be executed accordingly.
- The client will receive a trade confirmation message from the exchanges or the stockbroker once the execution is done.
- The stockbroker will dispatch a contract note with all the particulars of the trades executed to the clients.
- The trade will be executed after the sell and buy orders become matched and this will initiate the clearing process.
- All the trades executed in this manner in the equity segment feature the T+2 settlement cycles.
- In the subsequent step, the financial obligations that have been identified in the clearing phase will be fulfilled. This step is going to involve the transaction settlement for the sellers and the purchasers.
- The trade will be settled after the seller will receive the cash and the buyer will receive the securities.
- The shares will be transferred to the account of the buyer after all the steps have been executed, and the amount obtained by selling the share will be credited to the account of the seller.
Online versus offline trading
The advent of the Internet has made online trading quite popular during the last 2 decades, and it has overshadowed offline trading in many aspects as well. Here, we will mention several differences between the 2 types of trading.
- Simplicity of trading
Online trading will enable the trader to trade conveniently without taking help from any broker. On the contrary, by the term offline trading, we mean performing trading through a broker on whom the trader will be totally dependent.
- Trading charges
It will be feasible to get high profits from online trading since the brokerage fee is quite less. On the contrary, brokers will be charging exorbitant fees from the traders in offline trading that can have an impact on the profits accrued.
- Convenience
Online trading will enable the trader to trade virtually from anywhere and at any time with the usage of the Internet. On the contrary, one needs to be present physically at the office of the broker while executing offline trading which can be quite inconvenient in the long run.
