online trading process

8/13/2019 online trading process

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1.1 INTRODUCTION

The capital market is the market for securities, where companies and the government

can raise long term funds. The capital market includes the stock market and the bond

market. Financial regulators ensure that investors are protected against fraud. The capital

markets consist of the primary market, where new issues are distributed to investors, and

the secondary market, where existing securities are traded.

Capital market thus plays a vital role in channelizing the savings of individuals for

Investment in the economic development of the country. As a result the investors are not

constrained by their individual abilities, but by the abilities of the companies, which in

turn enhance the savings and investments in the country, liquidity of capital market is an

important factor affecting growth.

Since projects require long term finance, but on the other hand, the investor may not like

to relinquish control over their savings for a long time. A liquid stock market ensures a

quick exit without incurring heavy losses or costs. Thus development of efficient market

system is necessary for creating conductive climate for investment and economic

growth.

1.2 CAPITAL MARKET

Broadly , the comprises of two segmentsthe new issue market which is commonly

known as primary market and the stock market which is known as secondary market.

1.2.1 PRIMARY

A primary offering, such as with a corporate bond, means you are buying it

directly from the issuer, at par value, usually. A secondary market is where you

sell or buy existing issues. I.E. If you bought a bond last year, now need to get

your principal, you can sell it in the secondary market. You may not get par value.

If rates are up since you bought the bond, then you will likely have to sell it at a 13


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discount to be able to get rid of it. If rates have fallen since you bought it, you

could get a premium for it.

1.2.2 SEONDARY

The market where securities are traded after they are initially offered in the primary

market. Most trading is done in the secondary market. To explain further, it is trading in

previously issued financial instruments. An organized market for used securities. Bombay

Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter

markets, residential mortgage loans, governmental guaranteed loans etc

Secondary Market refers to a market where securities are traded after being initially

offered to the public in the primary market and/or listed on the Stock Exchange. Majority

of the trading is done in the secondary market. Secondary market comprises of equity

markets and the debt markets. For the general investor, the secondary market provides an

efficient platform for trading of his securities. For the management of the company,

Secondary equity markets serve as a monitoring and control conduitby facilitating

value-enhancing control activities, enabling implementation of incentive-based

management contracts, and aggregating information (via price discovery) that guides

management decisions.

1.3BRIEF ABOUT THE STOCK EXCHANGE

Stock Exchange is a market like any other centralized market where both

buyers and sellers come and conduct their business of purchase and sale of shares &

securities. In other words, it is a market place for shares and securities where trading

takes place in a controlled and protected environment. 14

1.3.1 MEANING OF STOCK EXCHANGE

A stock exchange, share market or bourse is a corporation or mutual organization which

provides "trading" facilities for stock brokers and traders, to trade stocks and other


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securities. Stock exchanges also provide facilities for the issue and redemption of

securities as well as other financial instruments and capital events including the payment

of income and dividends. The securities traded on a stock exchange include: shares issued

by companies, unit trusts and other pooled investment products and bonds. To be able to

trade a security on a certain stock exchange, it has to be listed there. Usually there is a

central location at least for recordkeeping, but trade is less and less linked to such a

physical place, as modern markets are electronic networks, which gives them advantages

of speed and cost of transactions. Trade on an exchange is by members only. The initial

offering of stocks and bonds to investors is by definition done in the primary market and

subsequent trading is done in the secondary market. A stock exchange is often the most

important component of a stock market. Supply and demand in stock markets is driven by

various factors which, as in all free markets, affect the price of stocks (see stock

valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must

stock be subsequently traded on the exchange. Such trading is said to be off exchange or

over-the-counter. This is the usual way that bonds are traded. Increasingly, stock

exchanges are part of a global market for securities.

1.3.2 CONCEPT OF SHARE TRADING

The concept of share broking emerged after the establishment of the joint stock

companies. The ownership of the companies was divided into small parts and that every

part was called share. So, the term Share denominates some part in the ownership of

the company. The shares are freely transferable subject to the some certain restrictions.

When the need was felt to sell the shares by the owner of the shares, it was difficult to 15

find out the buyers of the shares who want to buy the shares at the price the seller want to

sell. At that time a need was felt to bring the buyers and sellers on a common platform.


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To solve this problem, a group of persons came into picture, which used to bring the

buyers and sellers together for the trade of the shares. These persons are called the share

Brokers who find the persons who wish to buy or sell their securities. The whole process

of finding the buyers and sellers of the securities by the brokers is called the Share

Broking.

The origination of the Indian securities market may be traced back to 1975, when 22

enterprise brokers under a Banyan tree established the Bombay Stock Exchange (BSE).

Over the last 130 years, the Indian securities market has evolved continuously to become

one of the most dynamic, modern international standards both in terms of structure and in

terms of operating efficiency.

1.4 STATEMENT OF PROBLEM

In our present at the time when money is required, every enterprise, whether big medium

or small needs finance to Carry on its operations and to achieve its targets, financial

management is a process of identifying management a calculation analysis, preparation,

interrelation and communication of financial to plan evaluate and control.

Online trading is a service offered on the internet for purchase and sales of shares,

in the real work you place an order with your stock broker website through your internet

based trading engine, these orders are routed to the stock exchange without manual

intervention and executed their own in a matter of few seconds.

With reasonable review of literature a through work in studying effective

functioning of online trading in stock exchange is left a necessary. In the explained

circumstances online trading system is chosen for study in Hyderabad stock exchange

LTD, Hyderabad, Andhra Pradesh. 16

HYDERABAD STOCK EXCHANGE

Historical background:


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The stock market provides a market place for the purchase and sale of securities

evidencing the ownership of business property of a public or business debt. The origin of

the stock market therefore goes to the time when securities representing this property or

promises to pay were the first issued and made transferable from one person to another.

The earliest records of security dealings in India were loan transactions of East India

Company, way back in eighteenth century. By 1830s there was a perceptible increase in

the volume of business, not only in loans but also in corporate stocks and shares. In 1850,

the companies Act introducing limited liability was enacted with it commenced the era of

Modern Joint Stock Enterprise in India. The Act also served to generate investor interest

in corporate securities from 1850-1865, the history of brokers and their rise to power in

Bombay is the history of Premchand Roychand. Brokerage business attracted many

people into the field and by 1860; the number of brokers had increase to 60. Infect the

oldest stock exchange in Asia is the BSE having been established in 1875, while the

Tokyo Stock Exchange was founded in 1878. 17

1.5 COMPANY PROFILE

1.5.1 ORIGIN:

Rapid growth in industries in the erstwhile Hyderabad State saw efforts at starting the

Stock Exchange. In November, 1941 some leading bankers and brokers formed the share

and Stock Brokers Association. In 1942, Mr. Gulab Mohammed, the Finance Minister

formed a Committee for the purpose of constituting Rules and Regulations of the Stock

Exchange. Sri Purushothamdas Thakurdas, President and Founder Member of the

Hyderabad Stock Exchange performed the opening ceremony of the Exchange on

14.1.1943 under Hyderabad companies Act, Mr Kamal Yar Jung Bahadur was the first

President of the Exchange. The HSE started functioning under Hyderabad Securities

Contract Act of No.21 of 1352 under H.E.H. Nizams Government as a Company


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Limited by guarantee. It was the 6th Stock Exchange recognized under Securities Contract

Act, after the Premier Stock Exchanges. Ahmedabad, Bombay, Calcutta, Madras and

Bangalore Stock Exchange. All deliveries were completed every Monday or the next

working day.

The Securities Contract (Regulation) Act, 1956 was enacted by the Parliament, passed

into Law and the rules were also framed in 1957, the Act and the rules were brought into

force from 20th February 1957 by the Government of India.

The HSE was first recognized by the Government of India on 29th September 1958 as

Securities Regulation Act was made applicable to twin cities of Hyderabad and

Secunderabad from that date. In view of substantial growth in trading activities, and for 18

the yeoman services rendered by the Exchange, the Exchange was bestowed with

permanent recognition with effect from 29th September 1983.

The Exchange has a significant share in achievements or erstwhile State of Andhra

Pradesh to its present state in the matter of Industrial development.

1.5.2 OBJECTIVES

The Exchange was established on 18th October, 1943 with the main objective to create,

protect and develop a healthy Capital Market in the State of Andhra Pradesh to

effectively serve the public and Investors interests.

The property, capital and income of the Exchange, as per the Memorandum and Articles

of Association of the Exchange, shall have to be applied solely towards the promotion of

the objects of the Exchange. Even in case of dissolution, the surplus funds shall have to

be devoted to any activity having the same object, as Exchange or be distributed in

Charity, as may be determined by the Exchange or the High Court of judicature. Thus, in

short, it is a Charitable Institution.

The Hyderabad Stock Exchange Limited is now on its stride of completing its 62nd year


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in the history of Capital Markets serving the cause of saving and investments. The

Exchange has made its beginning in 1943 and today occupies a prominent place among

the Regional Stock Exchanges in India. The Hyderabad Stock Exchange has been

promoting the mobilization of funds into the Industrial sector for development of

industrialization in the State of Andhra Pradesh. 19

1.5.3 GROWTH

The Hyderabad Stock Exchange Ltd., established in 1943 as a non-profit making

organization, catering to the needs of the needs of investing population started its

operations in a small way in a rented building in Koti area, it had shifted into Aiyangar

plaza, Bank street in 1987, in September 1989, then the Vice President of India Honble

Dr.Shankar Dayal Sharma had inaugurated the own building of the stock exchange at

Himayatnagar, Hyderabad, later in order to bring all the trading members under one roof,

the exchange acquired still a larger premises situated 6-3-654/A; Somajiguda,

Hyderabad-82, with a six stored building and a constructed area of about 4,86,842 sft

(Including cellar of 70,857 sft). Considerably, there has been a tremendous perceptible

growth which could be observed from the statistics.

The number of members of the exchange was 55 in 1943, 117 in 1993 and increased to

300 with 869 listed companies having paid up capital of Rs.19,128.95 crores as on 31-3-

2000, the exchange has got a very smooth settlement system.

GOVERNING BOARD

At present, the governing board consists of the following:

MEMBERS OF EXCHANGE

Sri Hari Narayana Rathi

Sri Rajendra V.Naniwadekar

Sri K. Shiva Kumar 20


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Sri R.D.Lahoti

Sri Ram Swaroop Agarwal

Sri Dattatraya

SEBI NOMINEE DIRECTORS

Sri N.S Ponunambi- register company {Govt. of India}

PUBLIC NOMINEE DIRECTORS

Dr N.R.Sivaswamy (Chairman HSE) -- Former CBDT chairman

Justice V.Bhasker Rao -- Retd Judge High Court

Sri P.Murali Mohan Rao -- Mogili & co-Chartered Accountant

Dr.B.Brahmaiah -- G.M.JNIDB

EXECUTIVE DIRECTOR

Sri S.Sarveshwar Reddy 21

SETTLEMENT CYCLE SCHEDULE

SR. NO. DAY DESCRIPTION OF ACTIVITY TRADE

1 T Trading Day

2 T+2 PAY IN BY 10.30 am.

3 T+2 PAYOUT BY 2 pm.

4 T+3 Auction of shortage in deliveries

5 T+5 Auction pay-in by 10.30 (1 am/ pay

Out by 2 pm.)

1.5.4 FUNCTIONS OF STOCK EXHANGE

Stock exchange is established into the main purpose of providing a

market place for the members to deal in securities under well laid down regulations and

to protect the interest of the investors. The main functions of stock exchange are;

1. It brings the companies and investors together so that the investors can put risk


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capital into companies and thus, companies can use the capital.

2. It provides an orderly regulated market for securities.

3. It provides continuous, ready and open market for selling and buying securities.

4. It promotes savings and investment in the economy by attracting funds from the

investors.

5. It facilitates take overs by means of acquiring majority of shares traded on the

stock market.

6. It acts as a clearing house of business information.

7. It motivates the managers of well reputed companies, to retain their shares in A

group, to improve performance. 22

8. It induces the managers to improve performance for converting non-specified

shares into specified shares in the exchange.

9. It enables the investors to evaluate the net worth of their holdings.

10. It also allows the companies to float their shares in the market. 23

CHAPTER:2

2.0 THEORETICAL CONCEPTS

2.1 ONLINE TRADING

2.2 FEATURES OF ONLINE TRADING

2.3 PROBLEMS OF ONLINE BROKING

2.4 PROCESS OF ONLINE TRADING

2.5 MECHANICS OF ONLINE TRADING 24

2.1 ONLINE TRADING

Change is the law of nature. There were times when man was a wanderer or a

normal. He himself had to go place to place in search of food, water and now everything

is available at your doorstep just at the click of the mouse. The growth of information


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technology has affected almost all sectors of life. Internet has enabled us to get every

information at our doorstep. When Internet has affected all sectors he could stock

markets the most important player of the economy, has remained far behind? Like all

other sectors Internet has set its feet in the stock markets also.

Internet trading commissions are clearly posted on the websites of the various services,

and are typically a fixed rate charge, depending upon the type of security being traded

and the size of trade. In theory, therefore, an Interest investor always knows what

commission he is being charged on each trade. Internet investors can take as much time

as they would like to take prior to placing a trade order. Similarly the online investor

likely does not have to worry that his broker is making unauthorized trades. Since there is

no individual broker making a commission, the only person who is authorized to trace in

a the account is the actual investor. Furthermore, the internet investor can never become a

victim of excessive trading (where for the broker) since the investor maintains total

control over the number of transactions which take place in the account.

All of these positive features of internet trading may lead the unwary investor to believe

that Internet trading is a way to take control of their finances and save more money in the

process. Unfortunately, this is not always the case. The advantages of Internet stock

trading have also its weaknesses and these weaknesses present significant drawbacks for

the average investor.

First and foremost, the average investor is not an expert in the financial markets. There is

a danger for allowing the autonomy of online trading to hull you into the belief that you

are an expert investor. An online investor sitting at home at a personal computer also

foregoes proper investment advice and financial planning, perhaps among the most

valuable services provided by traditional brokers. 25

There are, of course, additional risks relative to performing transactions over the Internet


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especially on a shared computer. Those people whom investors have provided their

account number and password can freely trade that account while the investor will have

little, if any, resource against the brokerage firm for the breach of security.

2.1.1When was online trading introduced in INDIA?

Online trading started in India in February 2000 when a couple of brokers started

offering an online trading platformfortheir customers.

ONLINE TRADINGBY NSE & BSE

The central computer located at the Exchange is connected to the workstations of the

Brokers through satellite using Very Small Aperture Terminals (VSATs). Orders placed

at the Brokers' workstations reach the central computer and are matched by the computer

based on price and time priority.

Both the exchanges have switched over from the open outcry trading system to a fully

automated computerized mode of trading known as BOLT (BSE On Line Trading) and

NEAT (National Exchange Automated Trading) System. It facilitates more efficient

processing, automatic order matching, faster execution of trades and transparency. The

scrips traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups.

The 'A' group shares represent those, which are in the carry forward system (Badla). The

'F' group represents the debt market (fixed income securities) segment. The 'Z' group

scrips are the blacklisted companies. The 'C' group covers the odd lot securities in 'A',

'B1' & 'B2' groups and Rights renunciations. key regulator governing Stock Exchanges,

Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants

in Indian secondary and primary market is the Securities and Exchange Board of India

(SEBI) Ltd. 26

2..1..2 DIFFERENCE BETWEEN ONLINE AND OFFLINETRADIN

G G


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Nevertheless, with all the convenience of online trading there are still investors who

prefer the old fashion way of offline trading. Offline trading has lost some popularity but

it is still the main form of investing. Offline trading offers many benefits as well.

1. The one benefit that an investor appreciates the most is that they are not alone when

making investment decisions.

2. There are experienced and professional brokerage companies that handle their

investments for them.

3. Investors are not faced with the challenge of making these vital investment decisions;

especially, if they do not have the experience necessary to make the appropriate

investments.

4. Also, there is someone there to answer any questions that may cause concerns. Not to

mention, with offline trading mistakes are less likely to take place. No one wants to throw

their money away or stand by and watch someone else throw their money away. It may

be wise to hire a professional to assist you in making the correct investment decisions if

you feel you lack the knowledge necessary.

Points of difference between online trading and ofline trading are as follows:

1. Online trading is very expensive as compare to manual trading or offline trading.

2. Online trading consumes less time as compare to manual trading.

3. Online trading has very helpful to finding the records easily but offline trading takes

more time to finding the records.

4. In the help of online trading, there is no chance of any errors while doing the trading.

in offline trading there are some errors exist like barriers of communication .

5. With the help of online trading, we know the international market rate of share very

easily. 27

Internet Based Trading through Order Routing Systems


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Internet based trading on conventional exchanges, uses the Internet as a medium for

communicating client orders to the exchange, through broker web sites. Brokers web sites may

serve a variety of functions. These may include;

Allowing theclients to directly trade through investors;

Advertise the broker dealers services to potential investors;

Offer market information and investment tools similar to those offered by information

vendor or SRO web sites;

Offer real-time or delayed quote information, continuously update quotes while the

user visits other sites, or allow investors to create a personal stock ticker;

Provide market summaries and commentaries, analyst reports and trading strategies

and market data on currencies, mutual funds, options, market indices and news; and

Offer investors access to portfolio management tools and analytic programs;

Information on commission and fees; and

Account information and research reports.

In an Order Routing system, a broker offering Internet trading facility provides an

electronic template for the customer to enter the name of the security, whatever it is to be bought

or sold, the quantity and whatever the order is a market or limit order. Once the brokers system

receives this information.

Use of Internet as Alternative Trading Systems (Provision for price discovery and matching

outside conventional exchanges)

In foreign jurisdiction, Alternative trading sys

tems have been developing outside conventional securities markets, which provide investors with

additional proprietary electronic trading facilities for securities that are traded principally on

securities exchanges, or other organized markets. They have price discovery functions, matching

systems and crossing systems. The systems that are currently in use in outside jurisdictions are


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closed systems and are not accessible to the general public through the Internet. The securities

markets regulators abroad the maintained flexible and open policies designed to encourage 28

innovation in the secondary securities markets. As a result, a number of market participants,

usually broker-dealers, have developed computerized alternative trading systems by which the

system centralize, display, match, cross or otherwise execute trading interest.

Use of Internet for making Initial Public Offerings

Issues of securities of using the Internet to communicate directly with their

shareholders, potential investors and analysts by disseminating corporate information. In

foreign jurisdiction, they are also using the Internet to communicate to the public for the

following:

Public offerings;

Private offerings; and

Disclosure and communication

Issuers are using the Internet to market themselvesto potential investors. The Internet is also

being used for fulfilling necessary disclosure requirements, for disseminating the prospects in

electronics form and even for receiving share applications in public issues electronically. In

India, SEBI hastaken initiative in permitting use ofthe network ofstock exchange for collection

ofinvestor applicationsin public offerings by the issuer companies.

Investment Advisory Services

Brokers as well as other service providers such as investment firms, research outfits etc.

are using the Internet for marketing and advertising purposes, for presenting information on

portfolio analysis and market information, and for communicating with and receiving orders

from potential investors. The services offered by the service providers to the investors are

generally the following:

Advertising


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Providing investment information and investment advice;

Underwriting

Communicating with the investors; 29

Customer orders; and

Record keeping

2.1.3 Operational and System Requirements:

Operational Integrity:

The stock Exchange must ensure that the system used by the broker has provision for security,

reliability and confidentiality of data through use of encryption technology. This stock exchange

must also ensure that records encryption technology. The stock Exchange must also ensure the

records maintained in electronic from by the broker are not susceptible to manipulation.

System Capacity

The stock Exchange must ensure that the brokers maintain adequate backup systems and data

storage capacity. The stock Exchange must also ensure that the workers have adequate system

capacity for handling data transfer, and arranged for alternative means of communications in

case of Internet link failure.

Qualified Personnel:

The stock Exchange must lay down the minimum qualification fro personnel to ensure that the

broker has suitably qualified and adequate personnel to handle communication including

instructions as well as other back office work which is likely to increase because of higher

volumes.

Written Procedures:

Stock Exchange must develop uniform written procedures to handle contingency s

tuations and for review of incoming and outgoing electronic correspondence. 30

Signature Verification/ Authentication:


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It is desirable that participants use authentication technologies. For this purpose is should be

mandatory for participants to use certification agencies as and when notified by

Government/SEBI. They should also clearly specify when manual signatures would be required.

Client Broker Relationship

Know Your Client:

The stock Exchange must ensure that brokers have sufficient, verifiable information about

clients, which would facilitate risk evaluation of clients.

Broker- Client Agreement:

Brokers must enter into an agreement with clients spelling out all obligations and rights. This

agreement should also inter alia, the minimum service standards to be maintained by the broker

for such service specified by SEBI/Exchange for the internet based trading from time to time.

Exchange will prepare a model agreement for this purpose. The broker agreement with clients

should not have any clause that is less stringent/contrary to the conditions stipulated is the model

agreement.

Investor Information:

The broker web site providing the internet based trading facility should contain information

meant for investor protection such as rules and regulations affecting client broker relationship

arbitration rules, investor protection rules etc. The broker web site providing the Internet based

trading facility should also provide and display prominently, hyper link to the web site/page on

the web site of the relevant stock exchange (s) displaying rules/ regulations/ circulars.

Ticker/quote/order book displayed on the web-site of the broker should display the time stamp as

well as source of such information against the given information. 31

Order/Trade Confirmation:

Order/Trade confirmation should also be sent to the investor through email at clients discretion

at the time specified by the client in addition to the other made of display of such confirmation of


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real time basis on the broker web site. The investor should be allowed to specify the time interval

on the web site itself within which he would like to receive this information through email.

Facility for reconfirmation of orders which are larger than that specified by the member's risk

management system should be provided on the internet based system.

Handling Complaints by Investors:

Exchanges should monitor complaints from investors regarding service provided by brokers to

ensure a minimum level of service. Exchange should have separate cell specifically to handle

Internet trading related complaints. It is desirable that exchanges should also have facility for online

registration of complaints on their web site.

Risk Management:

Exchanges must ensure that brokers have a system-based control on the trading limits of clients,

and exposures taken by clients. Brokers must set predefined limits on the exposure and turnover

of each client. The broker systems should be capable of assessing the risk of the client as soon as

the order comes in. The client should be informed of acceptance/rejection of the order within a

reasonable period. In case system based control rejects an order because of client having

exceeded limits etc., the broker system may have a review and release facility to allow the order

to pass through.

Contract Notes:

Contract notes must be issued to clients as per existing regulations, within 24 hours of the trade

execution.

Cross Trades:

As a matter of abundant precaution, the committee seeks to reiterate that as III the case of

existing system, brokers using Internet based systems for routing client orders will also not be

allowed to cross trades of their clients with each other. All orders must be offered to the market

for matching.

It is emphasized that in addition to the requirements mentioned above, all existing obligations of


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the broker as per current regulation will continue without changes. Exchanges may also like to

specify more stringent standards as they may deem fit for allowing Internet based trading

facilities to their brokers.

Enforcement: A separate working group has been set to look into the surveillance and

enforcement related issues arising due to Internet based securities trading. However, general antifraud

provisions (SEBI Fraudulent and Unfair Trade Practices Regulations, 1995) would apply to

all transactions involving securities or financial services, regardless of the medium.

2.2 FEATURES OF ONLINE TRADING:

The Online Trading is having many features which make it most suitable for the investors to go

for. Some of these features are as follows:

Freedom of information:The Internet can provide a new sense of control over your financial future. The amount of investment

information available online is truly astounding. It's one of the best aspects of being a wired investor.

For the first time in history, any individual with an Internet connection can:

Know the price of any stock at any time

Review the price history of any stock in chart format

Follow market events in-depth

Receive a wealth of free commentary and analysis about stock markets and

the global economy

Conduct extensive financial research on any company

Control of your money:One of the great appeals of using an online trading account is the fact that the account belongs to

you, and is under your direct control. When you want to buy or sell stock, you no longer need to

call your broker on the phone; hope that he is in the office to place your order; possibly argue

with the broker about the order; and hope that the transaction is executed instantly.

Access to the market:At the most basic level, an online trading account gives you more agility in buying and selling


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stocks. This is through sophisticated information streams, dedicated trading platforms and

sophisticated tools for accessing the markets.

Ensures the best price for investors:Every broker house aims at providing the investor with the best price available. Also due to the

high level of transparency with regard to display of information relating to the specific stocks

and company profiles, you will be able to get the best quote for your orders.

Offers greater transparency:Online trading offers you greater transparency by providing you with an audit trail. This involves

a complete integrated electronic chain starting from order placement, to clearing and settlement

and finally ending with a credit into your depository account. All these stages are subject to

inspection, thus bringing in transparency into the system.

Enables hassle free trading:Online trading integrates your bank account, your trading account and your demat accounts,

which leads to easy and paperless trading for you.

Allow instant trade execution:You as an Investment online customer will be able to execute the entire trading transaction, right

from logging on to our site, to the execution and settlement of your bank account, in a very short

period of time.

Provides a level playing field:Trading on the net, gives even the smallest retail investor access to information that earlier was

available only to the big traders. This provides a level playing field for all investors in the

securities market.

Reduces the settlement risk:This method of trading reduces the settlement risk for the investor, as in this case all short sell

orders are squared off at the specified cut-off time and not allowed to be carried forward.


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In the case of a demat account your demat account is checked by us before executing your sell

transaction. This reduces the settlement risk for the buyer, who is assured of the delivery of the

securities and for you as a seller of the securities

Instant order trade confirmations:Every trade is confirmed immediately and you will receive an on-screen confirmation following

every trade with full details for your records. This avoids costly errors that would have been

discovered when it is too late.

Integrated accounts:Your Bank, Depository and online account are integrated for your convenience. Various broking

houses provide access to many of the popular banks.

Provides a level playing field:Broking houses work hard to keep our account and personal information secure. From updated

security technology to advanced fraud prevention measures, they have the people and tools in

place to provide a strong defense against electronic scams and fraud.

2.3 PROBLEMS OF ONLINE BROKING

There is a flip side to everything and online trading is no exception.

So, the main problems of online trading are as follows:

1.) "Server not found":

This may appear on ones screens when he is desperately trying to get out of an unprofitable

position. Some of the online sites are providing a telephone number for use in case their sites are

overloaded or their server down.

2.) Connectivity of the Broker with NSE:

Recently ICICI Direct had a connectivity problem with the NSE for two and halfhours during

trading hours. This problem is rare but be alive to its possibility. 36

3.) Cyber attack:


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In the event of a malicious attack on the systems of ones broker he is protected only if the

company is taking proper precautions against such attacks and if proper backup is regularly been

taken. He may like to choose a brokerage that has a stated security policy and contingency plan

in place.

4.) Non-availability of a seamless interface:

As a client one will access the NSE through a server of the online brokerage and this may

involve queuing delays. If a number of client access the server the server takes its own time

sending the orders to the NSE server. He must check out the seamlessness of this interface before

selecting an online brokerage. The faster the orders are processed the more seamless is the

interface.

5.) Non- availability of personalized advice:

If one like to ask his broker "Aaj kya achcha lag raha hai" he may not be able to do so. If he want

advice on a particular stock in his portfolio he may not even be able to get that.

6.) Margin:

If Internet trading alone is not fast and furious enough; many people are trading on margin. That

is where the brokerage firm lends you money by leveraging his account, allowing him to buy a

large amount of securities by putting up only a small amount of money. He may have forgotten

what he read in the small print of his agreement, but the brokerage firm has the right to change

the maintenance margin requirements without any warning or notice to him. In fact, the firm has

the right to liquidate his securities holdings (and it can pick and choose which ones) without any

notice to one if he fail to meet the margin call. And there he was leveraged to the hilt, hoping to

hit a home run when he discovered that he is required to make a large deposit that he cannot

make. The next thing one know, the firm is selling off his securities at a point in time that is not

the best for him. These are the perils of trading on margin. 37

7.) Little use of advisory services:


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The advisory services being promised by the brokers would be of little use to investors looking

for an insight into the market. Many would not like to rely on research reports, which are there

for all. So, net investors will have to do their own research and take their own decision, whether

wild or wise.

8.) Increased charges:

Some of the brokers are of the view that they would have to provide advisory services to the

customers. But with increased volumes, they will have to follow the international practice of

charging a little more than the normal charges from a customer looking for personal advice. 38

2.4 PROCESS OF ONLINE TRADING

An investor interesting in trading through Internet shall have to, firstly register himself with an

Internet brokerage firm. Some formalities such as filling the account opening form of the ebroker, copies

of identity proof, copy of residence proof are made to register himself with the etrader. Secondly, the

investor would be required to open a bank account with a scheduled bank

and sufficient balance should be kept in the account. Thirdly he would be required to open

account with a depository participant because only dematerialized shares can be traded on the internet.

So , generally following steps are followed while doing the trading through the Internet: Step-I:

Those investors interested in doing the trading over Internet system, that is,NEAT - ISX (NSE),

should approach the brokers and register with the Stock Broker.

Step-2:

After registration, the broker will provide to them a login name, password and a personal

identification number (PIN).

Step-3:

Actual placement of an order, Using the place order window as under can then place an order:

(a) First by entering the symbol and series of stock and other parameters such as quantity and

price of the scrip on the place order window.

(b) Second, fill in the symbol, series and the default quantity.


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Step-4:

It is the process of review. Thus, the investor has to review the order placed by clicking the

review option. He may also re-set to clear the values.

Step-5:

After the review has been satisfactory; the order has to be sent by clicking on the send option.

Step-6:

The investor will receive an "Order Confirmation" 'message along with the order number and the

value of the order.

Step- 7:

In case the order is rejected by the Broker or the Stock Exchange for certain reasons such as

invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a

time lag of about ten seconds is there in executing the trade.

Step-8:

It is regarding charging payment, for which there are different modes. Some brokers will take

some advance payment from the, investors and will fix their trading limits. When the trade is

executed, the broker will ask the investor for transfer of funds by the investor to his account.

2.5 THE MECHANICS OF ONLINE TRADING:

online trading process

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