Online Trading account
Up until 1990s, trading, which is the buying and selling of a commodity, currency pair, a stock or a future contract used to be conducted in trading pits. It was an electric environment and definitely not for the faint hearted. Bids and Offer prices would be hailed from the pit and exchange of physical securities would take place. A lot has changed since then, and the buying & selling of securities has moved online. This led to an increase in participation of the retail investor. Today online trading in India has become easier. One can place a bid, find a counter offer and complete the transaction whilst doing other chore from his home or office. Earlier interested investors would call his/her broker and ask him to carry forth a transaction on his/her behalf.
For the retail trader, it is far more convenient to access a platform from their homes without the need to call his/her broker. Not to mention, the beauty of being able to access the markets from several different locations. Today one can trade or make an investment whilst standing in queue to a bank, awaiting your flight at the airport or while being on a vacation with one’s family.
Let me first explain what the traditional set up was. Earlier, a participant, be it a trader or an investor, would call his broker to place a bid/offer on his/her behalf. In this approach, the investor/trader had the risk of loss of time in case the operator at the brokers end was attending to another client. This could result in the participant missing an opportunity to put in his order.
This may seem like a very small hitch, but let me assure you that it is not. I say so, because of two main reasons:
Firstly, a trader in, entering the market for the short term is very price sensitive. If he isn’t able to get through to his operator in time he may lose an opportunity to enter their position at the right moment. This could result in an opportunity slipping out their hands or entering at a price above or below their liking.
Secondly, on the emotional front for the trader/investor it may be a little unnerving and frustrating too.
Features of an Online Trading Account Using an online trading account is beneficial beyond the reasons mentioned above. The retail traders and investors need a platform that enables them to make timely decisions. It should be easy to understand, easy to use as well as be very quick in processing orders. For this, all that the participant needs to assure is that he has a good internet connection and a device that has above 2GB RAM. Let’s look at the various features that a good online trading account should have:
Access to trade/Hedge/Invest in Multiple markets (Equity, Commodities and Currencies):An investor/trader can access multiple market segments with an online account. The stock market securities i.e. Equity shares, future and option contracts are accessible to an investor online. All that is required from his end is that he should have a PAN card and a valid address proof. Additionally, for investing in the spot market he/she should submit a bank statement for the last 3 months or provide a cancelled Cheque with his/her name printed on it. Having an online account opens doors to various different opportunities for the investor as well as traders. For instance, an investor can who has a portfolio of say INR X amount in direct stocks would feel vulnerable to movements in the market. If he/she has also opened an account in the F & O segment he will have the option to hedge his positions using contracts of NIFTY 50 or certain individual securities.
If for instance, the investor holds certain stocks of Infosys or Wockhart Pharma (companies that earn a sizeable portion of their revenues in USD) are always exposed to fluctuations of the USD/INR pair. A smart use of the USD/INR pair can be used by him/her enabling him to minimize his/her securities.
Commodities too can be accessed through the online portal. A trader can hedge using future contracts. Let’s Suppose, an investor holds 30% of his portfolio in stocks of Asian Paints and Berger Paints. These companies are susceptible to fluctuations in oil prices. If the investor knows that the oil prices are on an upward trajectory for the medium term, then he may want to hedge the adverse impact of oil prices on his portfolio through the use of selling crude future contracts (since crude oil effects the prices of raw materials used in the manufacturing of paints).
Most Active Security (Value and Volume), Top Gainers and Losers:
Most traders, in my experience like to trade volatile stocks or indexes. The more volume there will be on a given security, the more likelihood of that security (stock, stock future, index future etc) showing a significant movement in a given direction. Online trading platforms must provide the consumer with information regarding the most active security (in terms of volume and value). For instance, the active traders would definitely like to view activity in their respective portfolios. If a share/future contract shows unusual volume in a particular day then it should be viewable to the investor on the online platform.
Traders generally use technical analysis to take positions. Some look at general price movements as shown by the Japanese Candle Stick charts and some use technical indicators. Traders generally use leading and lagging technical indicators that are helpful to understand the market scenario and make the entry and exits more precise for the participant. Each trader has his/her own style and strategy that he/she may follow. The simpler one keeps this the better would be his performance. Like anything, trading too should be kept simple. This is so because simpler the strategy easier it is to rectify losses and correct mistakes.
Creating your own market watch:
Calling your broker, asking him the ongoing rates, asking him the tip of the day etc. is an old school practice. Creating a customized market watch to fit the online traders’ needs is possible through the online portal. The online trader/investor can add all the securities: be it stocks or commodities that he wants to trade or keep a watch on. Other than the securities to be added, he can also customize the market watch with the Pivot Point levels as well as points of support and resistance.
For the online trader, this feature becomes very important. Understanding the market depth is vital for any trader before he/she takes a position. Market depth lists the orders that are yet to be processed for that particular scrip. One could imagine these to be the buyers and sellers waiting in line to get there orders executed. Studying this data provides the participant to anticipate which way the market may move. It tells the trader the number of buyers and sellers available in the markets.
Back office Reports:
All investors and traders need to view their ledger and keep a copy for their income tax returns. Another B/O report that is important for the investor/trader is the contract note. The contract note lists out the brokerage charged to the investor/trader, the complete list of the transactions on the particular date, and the taxes and stamp duty that is charged. Apart from the Contract Note and Ledger Statement, the investor/trader can also view his/her holdings by choosing the portfolio summary. All of the back office reports can be viewed through the online portal. With all these features now available for the retail participant investing and trading from his home or office, has become far more accessible as well as more convenient. The trading/investing experience has been enhanced too. Most intermediaries offer an online platform, and I feel it is the basic need of the day in order to participate in the markets. I have only listed a few features in this article, but I can assure you that there are a lot more than the ones that have been mentioned.