Before you begin trading online, you should first know what a trading account is. A trading account is the one you use to place buy or sell orders in the stock market.
So it is the intermediary between your bank account-where your money resides-and the stock market where your trade is going to take place.
Your trading account directly communicates with the actual stock exchanges to execute your orders. Now that we know what is trading account, let’s move on to the online trading definition and how it works.
Online Trading Definition
Online Trading is trading digitally with the help of an online trading platform. This is done through web and mobile applications. Trading accounts and demat accounts are used to facilitate online trading. Here is how it works.
1. Open a Trading and Demat Account
Before one starts online trading, a trading account is required for buying and selling securities, and a Demat account is necessary for holding the securities in electronic form. There are many brokers who provide such services in tandem; hence, it is quite easy for users.
2. Fund Your Trading Account
After opening your accounts, fund your trading account. These funds would be used for buying shares or other securities. Most of the brokers allow transfers through various means like net banking, UPI, and mobile wallets.
3. Research and Analysis
In addition, it’s always recommended to do some research in the market and analyze the performance of the securities in which you intend to execute trades. Many online trading platform give out research reports and stock screeners, among other analysis tools to assist you in those informed decisions.
4. Order Execution
In either case, once you have conducted your research, you can then place buy or sell orders directly from the online trading website. Once you submit your order, the system processes it in real time, connecting with stock exchanges to meet your request.
5. Keep an Eye on Your Portfolio and Monitor it
In fact, your monitoring of the portfolio becomes essential when you are making trades. Now, all this is easy to track online; therefore, you can easily adjust your strategy in congruence with the market sentiments.
Advantages of Online Trading
1. Convenience
Perhaps the greatest ease of online trading is its convenience. A person can trade from anywhere around the globe, at any time, as long as they have internet access. This allows maximum flexibility to an investor who would wish to manage his portfolio on the move.
2. Lower Costs
Traditional brokers charge an extremely high commission on trading. Online platforms generally cost much less, and the retail investor saves on the trading cost using these platforms.
3. Real-Time Market Information
You receive real-time information regarding the market on the online platform. Based on real-time stock prices and present trends, you can decide how to take things forward. You can even set up a price alert and notification mechanism.
4. Access to Research Tools
Most online trading websites offer powerful tools to analyze the markets. They give the users stock charts, financial reports, and recommendations from experts. This gives the investors an edge in proper data-driven investment decisions.
5. Full Control Over Investments
In online trading, you’re in control of your portfolio. You determine when to purchase or sell, and performance tracking becomes instantly available. No longer would you need a broker to make the trades, making you even more independent.
Disadvantages of Online Trading
Yes, like in most things, online trading also has its downside too:
- Market Risk: The stock market is very volatile, such that prices may change quickly. Unless you research and watch out for the risk attached to such investments, you’ll realize losses.
- Leverage Risk: There’s leverage in other trading platforms where you’ll be trading with the use of somebody else’s money. You can therefore make high profits or even suffer high losses according to changes in the market.
- Technical errors: Online portals, being like any other computer system, are prone to the possibility of technical errors due to a glitch or slowing down processing. It is frustrating when you want to execute trades in real time.
Conclusion
Online trading facilitates investor exposure to financial markets almost easily, efficiently, and at a relatively low cost. In addition to having a trading account, it provides access to stock exchanges and allows the freedom to conduct research on the securities and make real-time buy/sell decisions. Still, do not forget to be knowledgeable, keep track of your investments, and know what you are exposing yourself to.
