Online Trading has redefined the contours of Broking in more ways than one. It has brought about transparency in an otherwise opaque industry. It has made the entire broking value chain from order placement to confirmation to Demat credit absolutely seamless. But above all it has empowered the retail investor like never before. With information and action at the tips of her fingers, online is a natural choice.
ONLINE IS ALL ABOUT TRANSPARENCY
For those of us who have seen the pain of offline trading, the downsides were numerous. You placed an order and you could never be sure that you would get the best price for your order. More often than not, the dealer would prioritize your order based on your past relationship and brokerage revenue. A small investor was typically at a disadvantage in the broking game.
Online trading makes sense for a variety of reasons. Firstly, the investor is perfectly aware at what price the order can be placed and in what quantity. Secondly, online trading has created a democratic market place because what you see on the screen is largely what you get. The age-old risk of the dealer not operating in your interest is substantially, if not entirely, eliminated.
The biggest advantage of online trading is that it integrates 3 critical components of any trader’s interaction viz. banking funds, trading engine and demat holdings. The link between 3 components becomes virtually seamless in online trading. An investor is able to allocate funds of his choice, trade at the time and price of his choice and be rest assured that the demat credit comes on T+2 day.
3 REASONS WHY BROKERS SHOULD LOVE ONLINE TRADING
A MAJOR COST SAVING FOR BROKERS
No two opinions about that. Whether you run branches or franchises, the direct and indirect costs of establishing and maintaining the structure is huge. It also takes away your flexibility. Online trading saves the broker these blushes!
EASIER RISK MANAGEMENT IS ENABLED
In online trading the discretion at a branch level or region level is largely absent. Since all the trades and orders are online, the broker has a measure of risk exposure at any point of time. Makes risk management a lot easier.
MORE OF A ONE-TIME INVESTMENT
Unlike the offline model which is resource intensive, the online model is a one-time investment. Subsequently, the maintenance and support costs are substantially lower than the offline model. A sure kicker for ROI!
“Online Trading rewards scale by trading higher up-front costs with lower marginal costs” – John Katzman
6 WAYS INVESTORS CAN MAKE THE BEST OF ONLINE TRADING
- Always use your private PC or laptop only to trade. Ensure that your internet connection is secured and not an unsecured Wi-Fi connection. Remember, when you trade on a random PC or on an unsecured connection you are compromising your bank account, trading account and demat account.
- Every online trading portal gives you sufficient information and tools to do your research. Make the best of it. You can use your broker’s recommendation as a starting point. Try to ratify with your own research before taking a buy or sell decision on any stock. That is the real power of online trading.
- Your online trading facility gives you direct access to the availability of any stock at various price points. Don’t simply jump into a market order. Observe the market for some time to get cues on the demand pattern. If you see weakness in a stock, try to buy at a lower price. Online trading empowers you to do that.
- Most online brokers give you live news and corporate announcements during trading hours. Make the best of it. More often than not, tracking this information helps you to decide on your existing investments and trading positions. Over a period of time you will realize that it is fairly easy.
- Keep a tab on your online trading statements and your contract notes to ensure that you are getting stocks at the price you want. Always cross check that order cancellations are actually implemented by the system. Also ensure that you get demat credits of your purchases latest by T+3 day.
- Most online trading portals also permit you to create portfolios online and also take stock of your capital gains / losses over a period of time. This is useful to identify if your trading activity is profitable over a period of time. Use this feature extensively and regularly to modify your strategy, if necessary.
HOW TO MAKE THE BEST OF ONLINE TRADING
An old broker friend once rightly said, “Online trading does not make you rich. But it surely saves you from becoming a sucker”. Back in the late 90s, the spread of online broking was helped by 2 major factors viz. dematerialized ownership and online banking. The spread of personal PCs and laptops only accentuated this trend towards online broking. That was the first phase of growth in online broking.
We are now at the beginning of the second phase of growth in online trading. The hardware has now shifted from being a PC / laptop to the more nimble Smartphone and notepads. Faster internet connections, broadband and Wi-Fi have ensured that it is almost possible to trade from anywhere without compromising security. Additionally, stiffer competition among brokers is forcing more retail investors to be migrated to the online platform. If anything, it will be for the benefit of retail investors.
TAKEAWAYS FROM THE “ONLINE TRADING” DEBATE
The bottom-line is that online trading empowers retail investors like never before. As a customer you do not have to worry about being discriminated by the dealer for the size of your trading volumes. You can do the research, decide the price, decide the quantity and execute the entire transaction end-to-end from the comfort of your home or office. This empowerment is critical because it not only opens up a wide market for equities, but also ensures easy on-boarding of customers into equities.
Over the last many years, the broking industry in India has gone through a variety of crises. The biggest refrain has been the doubts in the minds of retail investors that they were not getting a fair deal in the equity markets. Not any longer. Online trading has ensured that the retail investor is empowered like never before. It is the future of equity market trading. It is also a golden opportunity for investors to take full control over their trading performance. The customer may finally be the king.