Knowledge Base

What is Online Trading

in Basics of trading

What is online trading and its benefits

Gone are those days when you had to queue outside the stock exchange to submit your trade orders. Now you can buy anywhere between one to thousands of shares all at the click of the button. All of this is thanks to the advent of online trading.

Here are some things to know about online share trading:

  1. What is Online Trading: It is quite simply placing orders for buying and selling shares using an online stock trading application. This could be based on a browser or a desktop application. The application then forwards your order to the exchange, which would then process it.
  2. Trading Account: For online stock trading, you need to first open a trading account with a brokerage firm. You cannot trade without the use of a broker. Once your account is opened, ensure online trading service is activated. Brokerages usually provide a separate trading application that you can download. This can be used to monitor your portfolio, get live market updates as well as conduct trades online.
  3. Bank, Demat Account:  Once you open a trading account, you have to link it to your bank and demat accounts. The bank account helps you pay for your orders. Even if you are selling shares, the amount would be automatically credited to your bank account. The demat account acts like your postal address. That is where your shares will be credited to or debited from. Linking the three ensures you don’t have to keep punching in the details again and again. So, whenever you trade online, all you have to do is give the details of your order like name of shares, quantity, price level and so on.
  4. How Order Flows:  The brokerage firm acts as the medium between you and the exchange. However, there are multiple investors linked to a brokerage firm. How many can the broker physically deal with at a time? This is where the online share trading application comes handy. You first punch in the order request, which then gets accepted by the brokerage firm. This then goes to the exchange, where an appropriate seller or buyer is found for you. Meanwhile, the exchange also validates your account details, your demat account number, the amount you have deposited and so on. Once the order is processed, you get a confirmation message. The shares then get debited from or credited to your demat account. Meanwhile, you get the receipt of the shares.
  5. Advantages: The best advantage of the online stock trading account is that you can trade from anywhere in the country, even the remotest place possible. This was very difficult earlier. Moreover, the amount of time it takes to place and process an order has reduced. It takes barely few seconds, maybe a minute, to place an order for buying and selling shares. This can come really handy when the market price is changing every split second. You can also place different kinds of orders while trading online, which can place orders automatically at certain price levels. (Click here to know the different order types) This ensures you don’t have to monitor share prices every few seconds.