Portfolio

Five tips for online trading

Nithin Kamath | Updated on November 22, 2017

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You should start with brokers who have a physical presence to help you with the basics, even if they charge a higher brokerage.

Interest in trading has gained momentum because of the recent rise in stock prices. Both old and new investors have jumped to trading stocks online. Here are 5 things to keep in mind when you trade online.

Choosing the brokerage

A brokerage firm offers you a platform to buy and sell stocks at a cost (brokerage).

You will need to choose a broker who offers you an online trading platform. To begin with, till you understand the nuances of online trading, it would be wise to start with brokers who have a physical presence to help you with the basics, even if the brokerage charged by them is higher. Once adept at online trading, you can move to brokers who stay completely online and offer you a fast and reliable trading platform at a fraction of the brokerage you pay to brokers who operate through branches. Before starting with any broker, verify their track record.

trading platform

Most online brokers today offer you 3 types of trading platforms — Software-based, Web-based and Mobile-based.

Software-based would be the best option. This would need a good system and Internet speed for optimised performance. Some brokers might ask you for software usage fees or daily turnover commitment to let you use the software version. It is best to stay away from such brokers.

Web-based would be an ideal option if you work in an office which doesn’t allow you to install an external application, or you have to work behind firewalls or if your Internet speed is not good.

Most of the Web-based platforms would require Java to be installed for watching live streaming quotes. Few brokers have started to offer Web-based tools which work on html5. This gives you a software-like interface, but would work in almost any environment.

Mobile trading will most likely be the preferred way of trading in the future. Most of the brokers today offer mobile applications which will work on any smartphone. It is a must have for people who want to invest/track stocks on the go.

Online Bank Account

Unlike offline brokers who might let you buy stocks without funds in your trading account by presenting a cheque, online brokers require you to have funds upfront before you can take a trade.

Funds can be transferred to your trading account either through cheque, instant payment gateways or NEFT/RTGS. Cheques may take many days to clear and without clear balance in your account an online broker would not let you trade. NEFT/RTGS can take 2-8 hours for the funds to reflect in your trading account. The preferred way to transfer funds would be through the online instant payment gateway provided by the broker on the trading platform. This will ensure that you are able to buy stocks immediately, which will be critical when an opportunity arises.

Not all banks may be enabled on the instant payment gateway with your broker. Typically a broker will have tie-ups with around 20-30 banks.

Monitoring trading activity

As an online trader, all trading reports would most likely be sent to your email and not as a physical copy. The 2 reports which have to be sent to you mandatorily are:

Contract Note: Digitally signed contract on the trades executed by you and the corresponding charges.

Margin Statement: Statement showing how your trades and positions have affected your cash margin.

Both the reports should be sent to you within 24 hours from the end of trading day.

The most important aspect of trading online is to exercise caution as it is very easy to get carried away and overtrade. With instant access to your bank accounts, there is a risk of you being undisciplined and taking more risk than what you had planned at the spur of the moment. Start small, learn and gradually increase the size of your trading account.

(The writer is Founder/CEO, Zerodha – Member NSE, BSE & MCX)

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Published on November 03, 2012
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