Online trading in India
Not many people know enough about trading to make a living from it. Many continue to dabble in it thinking they can “get rich without trying.” But, trading is more involved and continues to evolve. This article reviews online trading in India and how beginners and professionals may benefit from it.
What is Online Trading?
Before the trend of online trading, traders typically called to issue a "buy" or "sell" order to their brokerage firm to trade for them. The process was complicated and often had problems. Though online trading is available and mitigates many of the issues with offline trading, there are still some investors who practice offline trading.
Online trading is an increasingly popular way for investors to buy and sell financial products over the Internet. Brokers continue to take their operations online, and offer all forms of financial instruments, including bonds, commodities, Exchange Traded Funds (ETFs), and futures.
As the Internet continues to penetrate every fabric of the global society, the Indian community has also followed suit. This trend is evident in the world of financial trading. Many traders are migrating to online trading platforms, and the percentage of investors who have only known this means of trading keeps growing year after year. Do you want to place "buy" and "sell" orders, specify market limits, specify a stop-loss or determine the status of an order? Perhaps you also want to read news about entities relevant to a trade such as companies or governments, recall all the assets currently in your possession, access your previous investment statements, and so forth. The online platforms provide comprehensive dashboards to make this possible.
As mentioned, it was always the case that a buyer interested in investing in stocks would call his broker, asking them to formally request to purchase some financial asset for a specific amount. The broker would tell them the market price of the asset and confirm the order. As soon as the user confirmed their trading account, the broker fees, and the period for the order, the broker would place the order on the stock exchange.
However, the description above is in sharp contrast with what obtains with online investing or online trading.
Physical trading involves multiple steps and therefore takes longer. Online trading has a shorter process and is faster. It is the reason why online trading has soared in popularity and dominated the market across many countries of the world, including India.
Benefits of online trading
The widening adoption of online trading suggests that there are benefits investors are buying into. These benefits include:
- The elimination of middlemen
The middleman was once an integral component of the trading equation. But, online trading makes it possible to buy and sell financial instruments without talking with your broker. It is an enticing proposition for investors lacking the financial clout to engage full-service brokers.
- Greater investor control
As the investor, you deserve to have as much control over your trades as you can get. Online trading allows you to trade at any time you want to during the trading hours. You also have the liberty to make decisions without any interference from the broker.
The ability of investors to open, manage, and close accounts from virtually any location, including the comfort of their homes. All they need is a working device and internet access.
- Monitor investments in real-time
Online trading platforms offer a bunch of advanced tools and intuitive interfaces users can engage in monitoring trading performance and conduct your research. You can see real-time losses or gains once you login to your computer or phone.
- It is cheaper and faster
Brokers exist to execute trades. It is a vital service that ends up costing traders a decent amount of money. However, with online investing, there is a brokerage charge to the investor, but this is always less – by a significant amount – than what a traditional broker who will physically place a trade, would charge you.
The transactions are also faster, can be more secure and easier to initiate.
Some of the benefits of online trading include:
- Multiple financial products are now available. These used to be exclusive to banks or designated intermediaries. The growing ubiquity of the Internet makes it possible to drastically eliminate the place of an intermediary in any trading transaction.
- The currency is real money, and the user can analyse and select one or more financial products or stocks.
One of the significant benefits of online trading is that it lowers costs for both traders and investors.
How to Trade Online
It is crucial to learn and understand the intricacies of online investing to be successful at it. In stock trading, for instance, let's imagine that you place an order to buy some stock through an online platform. The platform saves the order in two databases: the exchange platform and the trading member platform. This data is the parameter for searching across platforms trading that specific stock, displaying the result along with the best possible price.
Once there is a price match with your demand, and you confirm the order, both parties validate the process. As soon as the process is complete, the user only has three days to complete the settlement of the money and transfer the money to your account.
Many online trading platforms offer stock analyses that help users ascertain the status of the market at any point in time. It is a good way for them to speculate on stock prices in the coming days and shape their decisions. Online platforms attract users with strong selling propositions such as ease of use, tight spreads and lower commission fees than competitors.
Buying financial instruments via online investments allows order execution within a few moments. But, there is so much that happens that you may not be aware of. These include:
- Registering the order.
- Placing the order in appropriate databases.
- The platform matches a seller and a buyer to match, and sends a confirmation message to both parties.
- The regulatory bodies become aware of the order and price.
- The trading records are placed in a record to enable regulators to analyse your previous transactions.
- The selling broker and the buying broker both receive a contract about the transaction.
- The brokers have few days – typically three – to effect the settlement. It is the process of exchanging cash and financial assets.
- Once this process is over, the money and the assets are in the appropriate accounts.
It is important to mention that the smooth execution of trades on an online platform is often dependent on having adequate funding in your account.
To summarise the process of successful online trading:
- You need to research and choose an asset using technical analysis, value research, identifying patterns, understanding the concept of short selling, and so forth.
- You also need to choose the best broker you can find for seamless transactions.
- You need to master the fundamentals of trading your chosen financial instrument and how to trade it online. All you need is a trading account and a Demat account.
- It is preferable to understand how to make smart investment decisions. It is important to know the financial assets that you can afford to trade. Beginning investors should work towards diversifying their portfolio and should form a culture of researching before investing. Since markets move in cycles, it is helpful to understand those cycles to get the best bargains possible.
Online Trading Platforms
Online trading is only possible because of the availability of online trading platforms. Let us take a peek into the world of online trading platforms.
What is an online trading platform?
An online trading platform is actually a piece of software for placing orders for financial products over a network (usually the Internet). Online trading often involves a financial intermediary. It is possible to trade various financial products via an online trading platform.
A trade may also take place directly between members or participants of the trading platform. Standard financial products which investors can trade electronically include bonds, commodities, currencies, derivatives, stocks, and so forth. Financial intermediaries may include brokers, investment banks, market makers and stock exchanges.
Online trading platforms make it possible for one to conduct electronic trading activities from any location. It offers a more convenient approach when compared with traditional floor trading that employs open outcry and telephone-based trading. Many traders refer to the trading software alone when they use the term "trading platform."
Live market price streaming is a core feature of electronic trading platforms. Users can trade with these along with the other trading tools on the platform. Some platforms even offer traders access to previously exclusive trading tools that only specialist trading firms would use. Online trading platforms may also perform high-frequency trading or trade specific technical analysis-based strategies automatically.
Online trading platforms have also evolved to accommodate more modern operating systems. Many of them are mobile-friendly and are available for Android, iOS, and Windows platforms.
How to Start Trading Online
How to register
Registering for online trading is easier than most people imagine. The first step is to open a Demat account. This type of account exists to hold your investments, including commodities and equities. Brokerage houses provide Demat accounts; all you need to do is find a good one to open an account with.
The brokerage house you choose should have fulfilled due registration with SEBI. You should also confirm that any brokerage charges from the firm are what you can afford to live with. Registration provides you with access to the trading platforms and a trading account to execute trades.
How to open a demo account
An investor can open a fully-functional demo trading account to practice their trading strategy by signing up with any online trading platform. They will get some virtual money to help them begin perfecting their trading strategy.
How to open a real account
For a real trading account, you need a broker. Most will ask you to fill an account opening form and a KYC form. Most offer a Demat trading account that is a requirement to store financial assets.
You will need some form of identification (a PAN card), proof of residency (such as the Aadhar card), and proof of income. A physical or e-KYC process follows when you will link your PAN card to your bank account and Aadhar card. You will have a ready account in 3 – 4 days after completing certification.
How to fund a deposit
Many brokerage firms allow you to deposit funds using a button available on your dashboard. You can transfer from your local bank account or use one of several electronic payments means to effect the deposit.
Minimum deposit amount
Minimum deposits depend on the brokerage firm and the class of financial product. However, many of the categories can accommodate traders with small amounts of money, though small amounts also mean smaller profits, even with leverage.
How to withdraw money
Just like for deposits, a local transfer is one way to withdraw money from your trading account and allow a processing time of 2 – 3 working days. Traders may also transfer to a banking card (Mastercard or Visa) or another wallet system, such as Neteller or Perfect Money. Some traders now prefer to collect their funds in Bitcoins.
Trading the Markets
There are two markets for trading: the primary market and the secondary market. The primary market focuses on IPOs, and regular trading does not happen there.
Online trading makes it possible to subscribe and issue IPOs via an online medium where investors can place their bids. The issuing company then allots shares to the Demat accounts of suitable applicants, and everything happens online.
Similarly, the secondary market targets regular share trading, investments vehicle trading, Forex trading, gold trading, and trading of other commodities online. Investors and traders are the principal participants that trade shares and investment vehicles in the online secondary market. The natural forces of demand and supply determine the price of trades. Traders of online stocks must participate in the secondary market.
How to trade the stock market
Stocks and indices are essential investment tools in the Indian market.
How to trade indices
Stock indices, on the other hand, track a group of stocks that use industry sector or market capitalisation. You can trade stock indices like individual stocks. Regular stock brokers restrict short-selling unlike in CFD trading.
How to trade stocks
Shares of equity, also known as stocks, are a unit of ownership in corporations. Regular stock brokers are available to facilitate your investment in stocks. However, they offer much lower leverage than CFD brokers. They also have a higher minimum deposit requirement.
The Forex market is the market for trading currencies. Forex is short for “FOReign EXchange.” The Forex market differs from the stock market, in that there are no physical exchanges for currency trading. Therefore, it is an over-the-counter (OTC) market.
Currency trading happens during Forex trading sessions directly between investors, hedge funds, banks, and other market participants.
How to trade currencies
The Forex market features eight major currencies:
- the Australian Dollar (AUD) – the Aussie
- the British Pound (GBP)
- the Canadian Dollar (CAD)
- the European Euro (EUR)
- the Japanese Yen (JPY)
- the New Zealand Dollar (NZD)
- the Swiss Franc (CHF)
- the US Dollar (USD)
Analysis – fundamental or technical – is key to trading the Forex market. Where your analysis indicates that a currency’s value will rise, it is advisable to buy that currency or “go long” as Forex traders say.
Similarly, where you suspect that a currency may fall in value, you would consider selling that currency or “go short.”
In online trading, investors trade currencies as CFDs (Contracts For Difference). It means that as an online currency trader, you can access high leverage and can short-sell a currency. In other words, you profit as prices fall.
The major Forex currency pairs are the pairs with the highest trading activity. They include:
These four pairs are deliverable currencies and form part of the g10 currency group. Others that are relatively close to major pair status include AUD/USD, NZD/USD, and USD/CAD. The three are in a group called "commodity pairs."
Cross currencies are pairs that do not involve the US Dollar. They facilitate international payments and are generally cheaper.
Cryptocurrencies continue to gain steam by the day, as governments and big corporations increasingly give their backing to virtual currencies. As a result, the brokers who have not added cryptocurrencies to their list of tradable assets are fast becoming the minority.
The Bitcoin revolution paved the way for Ethereum and Ripple. These three are top-rated options among retail traders. The cryptocurrency market experiences erratic volatility that can sometimes hit extreme levels and cause enormous losses for traders.
How to trade Bitcoin (BTC)
Bitcoin traders aim to buy the cryptocurrency (BTC) at a low value and resell it for higher. They are easy to buy at any cryptocurrency exchange. There are Android and iOS apps where you can link your bank account to enable you to make quick trades. It may require a KYC (Know Your Customer) procedure.
How to trade Ethereum (ETH)
As the second most popular cryptocurrency, ETH is an attractive investment. Like BTC, you need to use an exchange, set up an account and a wallet with them. From your linked bank account, you can buy ETH using the rupees in your bank account.
The exchanges are also the best places to sell ETH for a fee.
How to trade Ripple (XRP)
The Ripple payment network (RippleNet) and cryptocurrency (XRP) has a solid reputation with the largest financial institutions on the planet. You need an exchange that allows you to buy XRP. A few have a KYC requirement. Once you have funds in your account, you can buy XRP.
It is a similar process for buying XRP. Locate the "Sell XRP"option on your dashboard and provide the transaction details. If XRP is still not listed paired with your chosen currency, you need to exchange it for a more popular one before getting the tokens or coins you prefer.
Traders have always taken delight in trading commodities such as gold, oil, natural gas, platinum, silver, wheat, and the like. Commodities are popular assets in the financial markets.
Why do traders love commodities? They are a reliable way to diversify your portfolio or do what financial experts call “hedging.” Hedging protects the value of your assets because certain precious metals, like gold, are more likely to increase in value during global economic recessions and financial crises.
How to trade metals
Precious metals are metallic elements of high economic value that occur naturally in the earth’s crust. They can be industrial elements, as well as investments.
How to trade gold
Gold is highly durable and malleable. It is a key component in electronics and jewellery. You can trade gold as a CFD, so you only trade the price and not own the physical metal. The contract size for gold is 100 troy ounces.
How to trade silver
Silver is also a highly valuable precious metal which you can also trade it as a CFD and enjoy massive leverage. The contract size for silver is 5,000 troy ounces.
How to trade crude oil
Crude oil remains in high demand despite significant advances in renewable energy technologies. However, the crude oil market has profound political implications. A trader may invest in crude oil futures, which are contracts that allow them to buy or sell a quantity of crude at a certain price for delivery at a future date. There is no delivery in India – all contracts feature cash-only settlements.
How to trade assets
How to trade CFDs
CFDs are contracts that focus on the price of an underlying asset. So, if you choose to invest a few lakhs in oil or the New Zealand Dollar, you are not buying the underlying asset. However, your CFD allows you to track the price of the asset.
Buying or selling a CFD allows you to profit from the difference between the entry price and the closing price if the market goes according to your speculation. Naturally, you will post a loss if your analysis goes wrong, and the trade moves against you.
Two major reasons why retail online traders find CFDs exciting include:
CFDs afford the high leverage to the online trader. As with all forms of leverage, the trader can open much larger positions than were possible with their trading account. Trading a position on leverage means your broker uses a tiny amount from your trading account as collateral for the leveraged trade. The official term for this small amount is “margin.” However, trading on leverage presents a significant measure of risk because it magnifies profits as much as losses.
CFD trading allows you to short-sell a financial asset and profit when prices fall. With a short-selling strategy, you can borrow the financial instrument from a broker and sell it at the current market price.
When prices fall, you can buy the Financial instrument for a lower price and refund the loan to the broker. Your profit comes from the difference between the selling and initial buying price.
How to trade ETFs
You can trade stock-like securities called ETFs, in India. Since their 2002 launch in the country, their popularity has only grown in leaps and bounds. Begin by considering the category of ETF you wish to trade. Equity, gold, international exposure, and debt ETFs are categories of ETFs.
After considering the ETF category, the trading volume, expense ratio, and track error index are critical considerations. Arm yourself with a comprehensive investment plan before trading ETFs.
How to trade binary options
Binary options are a highly-regulated industry in India. It is risky, and there are only a few legitimate and profitable binary option brokers in India. It is one of those financial products where money management is highly critical.
Your job as a binary options trader is to make a speculation that expires at a particular time. It is the way to make binary options work for you.
Safety of Internet Trading
Issues of privacy and data breaches have become even more critical in the last few years. It has become of utmost importance in online trading, even in a third-world country like India.
How safe is it to trade online?
For the most part, it is safe to trade online. It does not mean threats are non-existent. Online brokers often do their best to run secure trading operations. However, implementing custom security measures is an excellent strategy for a responsible online trader.
My online trades is protected
Hackers are a potent threat to online trading in general. They are not just after traders; they target brokers too. You will be using your financial information when making transactions over the Internet. Again, the best brokerages will build a ten-yard wall to beat the hacker's ten-foot wall. It may not always be failure-proof, but it does as good a job as offline trading systems to protect financial transactions.
Is online trading safe?
Online trading is relatively safe. The brokerages do their best to protect trader investments, but you can take the extra step by ensuring that your broker is using high-end encryption algorithms of 128 bits.
Is online trading profitable?
Online trading can be profitable; however, it is often challenging to bring trades to profit. Indiscriminate use of leverage can make this even more difficult.
How do I start online trading?
It is essential to build a strong foundation by learning the basics of trading your chosen financial instrument. You also need an investment-holding or Demat account. The third critical step is to have a plan for your trading strategies to match your investment goals, investment budget, and investment outcomes.
How much do I need to day trade?
Intraday trading will cost you between 1 – 1.5 lakhs. You do need to consider your peculiar circumstances, however.
Online trading in India is an excellent way to diversify your income. However, adequate preparation is essential just as in any aspect of business. You can get a solid grasp of online trading fundamentals using the robust educational materials available on the IQ Option website, the definitive resource for cryptocurrency, Forex, and stock trading in India.