What is the Internet trading?
Internet Trading or Online Trading refers to the trading via the Internet. In an information hungry world, the investor community is not left far behind. Gone are those days of running behind a broker and managing loads of paper work. The capital markets are today literally at your fingertips. The onset of online trading changed the traditional value proposition of trading, allowing online brokers to supply investors with rich, interactive information in real-time, including market data, investment research and robust analytics. The result is an integrated trading experience that combines execution with interactive analysis shown by the growth of the online customer community from a mere 23,000 average trades on NSE per day in year 2000 to over 35,18,266 average trades in 2007. Presently, NSE has capability to handle 10,00,000 trades per day.
How is Internet trading advantageous?
a. Time:
Time is money, and if you ask yourself, most of us don’t find the time in our hectic schedules to go to our Depository Participant (DP), fill out a requisition slip.. .so what’s your alternative — an online account. It gives you not only the advantage of saving time; it also enables you to trade from anywhere. Imagine a person sitting in a small town in Rajasthan wants to contact his broker in Mumbai to get a trade through. Now, he can conveniently trade from anywhere using the tool of the Internet, Investors who travel frequently also need not miss out on trading opportunities. All you need is
a computer, a modem and a internet connection and
Bang!! You can trade online. In the bull market, nobody wants to miss out on the up trend. And, one way of ensuring this is keeping a track on the prices and place
buy/sell orders
b. Flexibility:
The sites offer you immense flexibility of trades at your fingertips. Want to cancel your order.. .do it in seconds. Want to modify the order... can do it easily. This flexibility is the greatest advantage of the online trading. Take a scenario here. You have placed an order to buy stock B at Rs.50. You keep tracking the movement of the stock for and in a couple of minutes you find that the prices are heading south. What do you do? Modify your order immediately and put a buy at Rs.45. Essentially you are cashing on the market opportunities. Adapt this to the rally. Replace the buy with a sell and interchange the figures. You are now sitting on an extra profit of five rupees.
c. Elimination of Physical Brokers:
You never liked your broker. He kept doing things at his pace and it is pretty tiring to track him down. Get rid of your frustrations as you eliminate the middleman. Now it’s just you, your DP, the custodian and the exchange. All electronically connected with each other.
d. Standardized Procedure:
Another hassle you face with your broker — ‘When will he give me the money (or shares)’? This too is erased from the picture. When your order is accepted by the exchange, it will give you your pay-in and pay-out dates. So, now you know when to expect cash or shares to be credited to your account.
e. Value Added Services:
Service providers offer a variety of trading options. Like BTST (Buy Today Sell Tomorrow) gives you the advantage to take short-term positions in the market and take advantage of price fluctuations. This is very useful when you want to cash in on news specific developments. Margin trading allows an investor to buy stocks without paying the entire purchase price. You are required to pay just the margin. For instance, if stock A costs Rs.100 and it is expected to appreciate to Rs.1 10 by the end of the trading session. The return is, therefore, 10 per cent on an investment of Rs.l00. However, if you opt for margin trading (assuming that margin payable is 20 per cent), then your return on investment is 50 per cent (Rs.10 on investment of Rs.50). Itis clear, that less capital is blocked for trade, i.e., you can use the balance Rs.80 for other purposes. Other options include Quick Cash where the DP will pay out cash on the same day and you do not have to wait for the exchange payout date, Loan against securities, etc. Features like short selling allow you to cash in on intra-day fluctuations.
f. Human Touch is available if necessary:
Service Providers combine off-line as well as on-line services. They give you the personal touch added to etrading thus combining structured advice and fast trades. It helps you to avoid getting carried away in a boom.
g. One stop shop:
Bank statements and transaction statements can be viewed at the click of a button. You don’t have to run behind the bank executives to get your monthly statements.
h. Informed Research:
Service providers carry stock analysis for your reference. This helps you in making the right choices. Let’s be practical. All of us cannot afford to hire analysts to review the stocks and companies. Given our situation, sites that provide research reports could be useful.
i. Flexibility of timing:
You can place orders even before the start of a trading session.
‘What are the disadvantages of the Internet trading?
a. Limited Knowledge:
Elimination of a broker could mean trouble. If you are not Warren Buffet (and we are not saying that your broker is), it could prove risky to enter the capital game without the structured advice. Expertise and experience helps to some extent. In a bull phase, moneymaking is not a difficult task. When you make a quick buck, you start feeling like a market genius. You get carried away and may make some mistakes that could be more than your risk appetite.
b. Outdated Informed Research:
Many sites let you have the ‘Added Advantage’ of research reports, all right!! But, take a look at one of the four corners of the web page and see the date of the analysis. In a market that changes fast, a two-year old review does not carry much weight. Look out for this catch-22 situation.
c. Flipside of value added services:
Features like Margin Trading have an unlimited upside plus and downside. Especially in a boom, as most of us get carried away by the market wave and take positions that are extremely speculative in nature. Remember, even if your hunch is right, the market can turn against you and expose you to unlimited short-term risks. If you don’t find the time to cover your short positions at the right time, the DP will square off the trade on your behalf before the end of the trading session at whatever price is available. At the end of the day, your demat balance may not be a pretty picture.
Another point to remember when you trade online:
Higher Brokerage: Get this situation. Buy stock A at Rs.50 on September 1. Sell it at Rs.70 on September 5. Wow! You land up thinking you have made 40 per cent in just five days. Forgetting any thing? Think again. The DP is charging a brokerage. Now get your calculators out and your return could be well below 40 per cent. Don’t be paranoid, but it’s prudent to have a look at your account at regular intervals, in case you are not a regular trader. As rightly said, ‘Precaution is definitely better than Cure’.
‘What are the pre-requisites to do the online trading? The pre-requisites for any investor to trade online are:
a. A bank account: This bank should be having an alliance with the online trading service provider. This bank account will facilitate as a payment and receipts gateway.
b. A depository account: The depository account also should be having an alliance with the online trading service provider. This account will act as a bank for the shares you hold.
c. Online service provider account:
This can be opened with any of the major service providers mentioned above.
0 comments:
Post a Comment