Online Share Trading: Process and Advantages
Post-liberalisation of the Indian economy in the early ’90s, India’s stock market witnessed a sharp boom in share market activities with the growing investor community. However, a few untoward incidents surrounding the Indian stock market in the mid-’90s led to a decrease in stock trading activity and an environment of fear amongst the investor community. But, with the advent of the internet and the rising internet penetration in India, online stock trading started gaining popularity in early 2000. The rapid rise of online exchanges, ease of access, enhanced flexibility, lesser dependency on brokerage houses and greater transparency have led to increased online trading in India.
How is online trading performed?
Traditionally, a retail investor had to call or visit their brokerage house and then order to buy or sell a stock. But with the advent of online trading, the concept of placing a trade order transformed. Explaining the trading process is also simplified in the absence of too much paperwork. When a user places an order to buy a particular stock online, this order gets saved in the database. It is then run through the online platform continuously to find a match with a stock seller. Then buyer and the seller are then virtually brought together who confirm each other’s trading positions. The online brokerage then settles the trade, and the money is wired to the buyer’s account.
Additional read: What are virtual stocks?
Advantages of online trading:
- Cost-effectiveness: Online trading is an inexpensive experience as it has eliminated the costs of intermediaries that previously mediated transactions between traders in all stages.
- Speed: Since information about trading prices flow electronically, they reach faster and broader. A trader can view prices and participate in trading from any part of the world.
- Offers: Online trading platforms can offer discounts to traders because of the elimination of various intermediary costs that previously existed in the physical trading market.
- Access: The internet has democratized access to capital. A small investor can also participate in the trading market with the same exposure to money as a more prominent investor.
- An example: Mutual Funds (MFs) are popular vehicles for trading in the online market.
The digital world has revolutionized trading by linking small investors with significant capital. This access has also ensured the flow of money. The internet is a self-help space where investors can teach themselves professional trading through online courses that itself becomes an investment in advancing the trader’s career goals. Thus, the online trading market keeps refreshing itself through cost-effective ways of trading and producing new investors through the digital platform.
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