The global stock market size is more than $89.5 trillion at the start of 2021. It has grown 358% since 2009.
Online trading is a user-friendly trading system that has eliminated the obligation to hold securities in the physical form. It relies on a book-entry record of ownership where no physically imprinted certificate is given to investors.
- Online trading involves buying and selling financial securities electronically on stock exchanges using an online platform.
- To start investing using online platforms, investors require a demat account and a trading account with a stockbroker as it is not possible to trade directly in the stock exchange.
- You require a demat account to hold all the securities you own in the stock market and a trading account to record the flow of transactions.
In the light of the statement – before you trade securities, learn everything about investing and the markets; this is the post to render you with the information on online trading in India. Let us start with elaborating demat and trading account functioning.
Obligatory Accounts in the Stock Market
Both demat and trading accounts are the core requirement for market participants to initiate online investing and trading. After adopting the online trading system by the Indian stock market, it is compulsory to open demat account online to deal in electronic securities.
A Demat account is an online repository with a long list of equity and debt instruments that it can hold electronically. Once you buy the securities, whether its shares, mutual fund units, exchange-traded funds, government securities, corporate bonds or IPO shares, the demat account will keep them safe and secure till you want to sell them. You need not be stressed about forgery, damage, delays, fake securities, heavy stamp duties as demat accounts have eliminated all such risks.
A trading account is the only tool that enables you to buy/sell securities in the stock market. You can invest in a number of securities at different stock exchanges using one single account. It is the account through which you instruct your stockbroker to buy/sell securities on your behalf. The broker will forward your trade to stock exchanges to find a buyer/seller intended to buy/sell the same securities in the same quantity. A demat account is obligatory for every investor but, a trading account is the primary account of day traders as they do not require to hold their securities for a long while. They have to square off their positions at the end of trading compulsorily.
Besides demat and trading accounts, another account that you require for investing is your bank savings account. The working system of all three accounts in the stock market is interdependent.
- Your demat account is linked with your trading account, and your trading is the link between your bank account and your demat account.
- Your demat account gets debited and credited with the securities that you buy and sell, respectively. Your linked trading account acts to transact for buying/selling securities.
- Whenever you purchase securities using your trading account, it will be credited to your demat account, and your savings account will be debited for the trade value. In contrast, whenever you sell your securities, it will be debited from your demat account, and your bank account will be credited with the trade value you receive.
Investors can consider the following steps to start investing.
1. Determine your time horizon for stock investing.
When one thinks about stock trading, it seems short-term in nature, but it is not the only option. You can invest for a long-term period based on your long-term goals. Long term investing is known for minimising the risk involved in the stock market. Consider diversification to mitigate the risk and maximize the returns.
2. Create and follow a financial plan.
Stock investing is about real-time data based on buy/sell indicators instead of being impulsive. Sentiments may result in making emotion-driven investment decisions, which is for sure a risky way to approach stock investing. Such decisions may disrupt your long-term financial objectives. It is the financial plan that will save you from impulsive decisions that are impacted by short-term emotions. You can make proper allocation towards short-term investments and long term investments in your portfolio.
3. Be careful about information sources for investing.
When you open a demat account, you receive in-depth analysis of companies and financial performance that can help you to make your investment decisions. The analysis reports provided by renowned online platforms are the result of their rich expertise across businesses, sectors and market cycles. Such reports can be used as reliable information to make investment decisions instead of using information from any random source.
4. Before investing, research the company thoroughly.
It is your responsibility to save your hard money from any loss. Thus, before investing your money, analyse the available financials of the company thoroughly. It will be easy to invest in a business that you understand. Make sure you carefully interpret publicly disclosed company information like annual reports, quarterly reports, shareholder meetings minutes, registration statements and prospectus for IPOs, and others. You can take your time researching to make informed investment decisions.
Thus, the online trading system has made online investing so easy with speedy and seamless trading experience. Open your demat and trading accounts to trade anytime, anywhere using your mobile or laptop.
Trading platforms allow you to catch every market action live. Still, for consistent success, you need to be well-prepared. Regular monitoring of dynamic shifts in markets helps a lot.