Individuals intend to build wealth and add shares to their investment portfolios in the long run. The share market is risky, but many studies have proved that investing your money in the right shares for over five years can provide inflation-beating returns. Short-term traders can also make quick profits following short-term strategies while investing in share markets. However, the share market can be volatile over a short period, making trading riskier.
What is Online Share Trading?
Online Share Trading refers to buying and selling shares of companies listed on the formal stock exchanges online using a stockbroker’s trading platform. You can access the broker’s online trading platform by opening a trading account. The share market is based on online stock exchanges that deal in dematerialised shares. Therefore, demat and trading accounts are mandatory in the online share trading system.
Demat Account Meaning:
A demat account is an online account to hold all your financial assets with a stockbroker registered with a central depository in India. When you own shares of a company, you hold them in your demat account for as long as you want to earn income. You can continue to earn dividend income by holding them in your demat account.
Trading Account Meaning:
A trading account is an online account to access the broker’s trading platform that is linked to online stock exchanges, like the Bombay Stock Exchange, etc. A trading platform is linked to multiple stock exchanges, enabling traders to trade at the relevant exchange.
In the online trading system, stock brokers use advanced technologies to facilitate their clients with more convenient trading. They allow individuals to open demat account online within 15 minutes following a 100% digital process without any cumbersome paperwork.
What are the Types of Online Share Trading?
The settlement cycle has been reduced from months to two days in the online share trading system, which makes traders book quick profits in different types of trading. Here are a few trading styles in the share market:
Intraday or day trading is a short-term approach towards the share market. It is an online trading strategy used by active traders. Day traders buy and sell shares during the same trading session before the market closes. Traders take and exit positions numerous times within the same day for a few minutes to hours. It allows traders to make quick short-term profits based on technical analysis. Day traders consider the market sentiment of a particular stock to take or exit positions. It is a highly risky trading style. Individuals with adequate market knowledge and experience consider intraday trading.
Positional trading is a long-term trading approach in the share market. Delivery trading involves taking long-term positions based on a fundamental analysis of a stock. Positional trading is suitable for both experienced and beginners in the share market, as delivery traders do not get impacted by temporary downfalls in the share market. Traders take positions with stocks in which they have the confidence to make significant returns.
This is the trading practice of utilizing borrowed funds from a stockbroker. When you find an opportunity of making significant profits in the share market but are out of funds, you can consider the margin trading facility (MTF) with your stock broker. However, it is a risky bet as you need to pay interest to the broker on the borrowed funds. Make sure you take a position only after analysing the stock for profit potential. Otherwise, you will have to bear losses and pay the interest to the broker.
It is a short-term trading style where traders take positions for two days to two weeks. Swing traders prefer stock or options trading based on technical analysis.
Scalping is an extremely short-term trading style. Here traders make speedy trades with a laser focus on chart analysing. Traders focus on price action and technical analysis rather than fundamental analysis.
Key Benefits of Online Share Trading
- Easy Accessibility: Online share trading facilitates the easy accessibility of numerous shares. Advanced trading platforms connect you to the stock exchange and allow you to monitor stock moments in real-time.
- Lower Brokerage: Brokerage charges were high during the offline trading system in the share market. It was a fee to execute your trade in ground-based stock exchanges. Using online trading platforms, you need to pay comparatively less brokerage.
- Faster Transactions: Online share trading is speedy. The broker immediately forwards your trade order to the relevant exchange, and the transaction is cleared by its clearinghouse following a Transaction Day + 2 days settlement process.
Thus, online trading is convenient and allows traders to choose a trading style as per their risk profile. Like many traders, you can consider a discount broker to enjoy trading services at a competitive cost.
Read also: The Trading Procedure On A Stock Exchange