Stock Market Basics

Online trading vs Offline trading

India is being hailed as the next growth engine of the world. When India grows, so will its stock market. The Indian markets are an ocean of opportunities, where both young and old can earn handsome returns on their investments. However, without proper knowledge and guidance, it is equally easy to lose one’s savings.

With the technological advances, the trading in the stock markets has changed a whole lot from the olden days. The strategies, which worked a few years back don’t work anymore. Hence, it is important to understand the advances in online trading and how it has changed the way we trade.

In the current article, we shall throw light on the differences between online and offline trading.

Offline trading-

Till around the early 2000’s, most of the trading was done offline, where after opening an account with the broker, you had to be in touch with him for placing all the trades. This kind of a practice had both its advantages and disadvantages.

Offline advantages

  1. Due to frequent calls to the broker, the service was personalized and the broker used to guide the investors on the current trend of the markets and update them on any rumours.In the 1990s, as the markets were manipulated by the big investors like Harshad Mehta and Ketan Parekh.An understanding of what they were buying helped many to make millions. However, in recent times with the arrival of the Foreign Institutional Investors, the markets cannot be manipulated easily, hence that advantage has reduced.

However, the broker does give certain good calls to his clients in offline, but it is not a profitable endeavour always, there are many who lose millions due to wrong advice of the broker. Hence, the profit or loss one would earn from the broker’s advice depends on the quality of the broker

2. Each broker has a policy wherein a certain amount of leverage is allowed for intraday trades. In offline trading, the broker extends extra trading leverage to his clients depending on his relationship with the client and his policy.

 3. At times, this can be useful if the trades are going your way, however, it can lead to huge losses if the markets turn against you. This facility is useful for a successful trader but can be a dangerous weapon in the hands of a novice trader.

If you are enrolled with an offline broker, you can’t see the movement of every tick in the markets. This is an advantage, especially for the traders who have gambling tendencies and who are not able to control their urges while sitting in front of the terminal.

4. At times, going through a call center and explaining to the customer service representative can be a daunting task and more so when the markets are live and your money is involved. The reaction from the call center can manytimes be slow and unsatisfactory.

The offline broker attends to your problems in a jiffy and is able to sort them out early due to his personal involvement.

However, there is always another side to the coin and it is important to know the difference.

Offline trading disadvantages

  1. High brokerage because the broker has to maintain a large staff to attend to all the clients.
  2. You don’t have the facility of charts at your home. If you want to see the chart, you have to go to the broker’s office, but you can only manage a sneak peak at the charts there as the dealer has to satisfy all his clients.
  3. If your relationship with your broker is not good, you will not get any valuable feedbacks and miss out on the calls generated by the broker.
  4. There was a large discrepancy in the opportunities available to the large traders and the small traders. They had a direct line to the floor and used to get a good fill on the orders, however, others were fleeced by the orders being delayed.
  5. During volatile markets, it is difficult to reach your broker as the telephone line is usually busy. During such occasions, one can lose a large amount of money in just a few minutes, especially when the markets crash.Intraday trading is difficult, as the speed of execution is a limiting factor.
  6. Manytimes the rogue broker or the dealer trades in the client’s account without informing the client. There are many cases where the client have lost lakhs of rupees.

Online trading

As technology became affordable, the stock markets introduced the option of online trading. With online trading, the retail trader has equal opportunities as the large institutional trader to profit from the markets.

There are a large number of online brokers that have sprung up to take advantage of the change. The erstwhile offline brokers have also started online trading for their clients. New investors are being attracted to the stock markets due to the online trading features.

Advantages of online trading

  1. You can get the same terminal as was available with only the broker earlier. With the right strategies, you can use the facilities of charts and the tick by tick movement to place orders on your own, without bothering to call the broker to place a trade. Modification of orders is easy and quick, you can take action depending on the prevailing market condition.
  2. Order placement is real-time without any delay. You can enter and exit many trades in a matter of minutes. This is especially useful for intraday traders and scalpers.
  3. There are many brokerages which offer the facility of trading with algorithms. The whole human emotions are bypassed when the computers trade according to the rules in the program.
  4. The calls are directly sent to the clients via the terminal, you don’t need to call the broker to get the calls.
  5. The brokerage rates have dropped a whole lot. From an earlier brokerage rates of anywhere between 0.5%-1% for delivery based cash trading, the brokerage rates have dropped to as low as Rs.15.00 per trade, irrespective of the number of shares you buy. Due to low brokerages, the traders can take more trades without worrying about the brokerage eating away into their profits.
  6. Many brokers offer direct chat facility with experts in real-time, you can avail that facility and ask the expert about his opinion on any particular stock. Though it is good to seek experts opinion, always take your own decisions.
  7. You can transfer money into the account in real-time and avail the benefits of margin against it. During market crashes, this can come in handy, when you are getting stocks at dirt cheap valuations. The money can remain in your bank account until you want to utilize it.
  8. You get immediate confirmation report if your order is executed. You don’t need to wait for the brokers call to know if your order has been placed and if so at what price.
  9. There is no discrepancy in the quantity of shares you own, as the portfolio gets updated in real-time, which you can see in your terminal. Hence, the chances of the stocks going into auction are reduced.
  10. Market manipulation has reduced to a large extent. The markets have become a level playing field for everyone, whether you are from Mumbai or from a small village far away in Assam.
  11. These days mobile trading also offers almost the same platform like that on the PC. Now you can trade from anywhere and on the go.

Disadvantages of online trading

  1. At times, due to the ease of placement of orders, a few traders tend to develop gambling tendencies. They tend to enter and exit positions at random.
  2. If you are not careful about keeping your PC safe, hackers can play havoc with your account.

Conclusion

There are numerous online brokers who offer low brokerages these days and offer various discounts, but a few of them are known to provide sub-par service. The larger brokers offer the facilities of both online and offline trading with the same account. Traders can choose such a brokerage after checking all the services on offer.

  1. The popularity of offline trading is waning and online trading is the future. However, do keep the numbers of the offline trading facility ready with you, for emergency situations when the internet doesn’t connect.
  2. If you are an intraday or an active trader, check the charting service and the facilities your broker offers before opening an account.
  3. Do check your account and portfolio regularly and bring any suspicious changes to the notice of the broker immediately.
  4. As far as possible don’t use the extra leverage offered by the broker until you become an expert trader.
  5. Read the various research reports sent to you by the broker, it will improve your knowledge.
  6. Don’t place random trades on the terminal just because you have an online account, always follow your trading plan.

Tags: online trading, offline trading, low brokerage,online brokers, offline brokers

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