How does online stock trading work?


If you ask a financial advisor “How do I achieve financial freedom?” », He will answer you simply:« earn more passive income than your active income ». Passive income means earning through other sources of income such as rent on a house, return on investment, etc. that would offset your expenses and help you live a burden-free life. When you reach a point where your investments provide you with more income than your primary source of income, you are on the right financial track.

However, how can you earn more passive income? The answer lies in smart and efficient investments. Of the many asset classes and investment tools, the one that has provided the most consistent returns has been the Indian stock market.

You may have heard of investors who made big profits when they only started investing small amounts in the stock market. If you are looking to meet the goals of your financial plan, investing in the Indian stock market is one way to do it. However, to start your investing journey the right way, you need to understand everything about online stock trading.

What is online stock trading?
There was a time when the Indian stock exchange operated on an auction system, where investors had to be physically present on the exchanges to buy / sell the shares they held in the form of physical certificates. Fast forward to this point, the stock trading process is completely digital.

Online stock trading allows investors to buy, sell and own shares of any publicly traded company using digital platforms and online trading tools. You can buy and sell stocks from your PC and laptop without going to the stock market.

Types of online stock market transactions
Investors try to invest in various types of online stock trading to find their niche and increase their profits. Each of them differs in its process, method and purpose. The types include:

  • Today’s transactions: Traders who engage in day trading or intraday trading are called day traders. In this form of trading, the buying and selling of stocks takes place on the same day, i.e. all transactions are bought and sold on the same day. This type of trading requires quick thinking and immediate action and is not suitable for beginners who are new to the stock market.
  • Arbitration: This technique focuses on the slight differences in the price of financial instruments. Whenever there is a difference in the price of a financial instrument between two markets, the trader or arbitrageur will buy the securities at a low price and resell them at a higher price.
  • Model negotiation: Volatility is a hallmark of the market. Stock charts rise and fall, leading to the formation of various patterns known as chart patterns. Pattern trading provides more consistent and profitable trades in the long run.
  • Swing exchange: This is a technique that focuses on the price of a stock at the start of the day and the closing price of the stock on the same day. This method focuses on price differences and the movement of the stock.
  • Short term trading: This type of trade is when the shelf life of the trade is from a day to a few weeks. Short trading begins with buying financial instruments and holding them for a period of up to a few weeks. The trader will create a sell position in this technique.
  • Medium term trading: Trading done in a matter of weeks to months is known as medium term trading. Mid-term trading indicates that the stock has the potential to reach a high position in the future.
  • Long term trading: This trading technique is mainly used for stocks that have a long standing relationship in the market. These stocks can become profitable from day to day, so the holding period for these stocks varies from a few months to a few years.

How does stock trading work for investors?

Currently, the only way to trade stocks is through online platforms. You would need an internet connection and an investment budget to go ahead with the investment process. As an investor, you can invest in two types of stock markets:

  • Primary market: A primary stock market is a place where a company first registers to raise funds and issue its shares for the first time. The goal of being publicly traded on a major stock exchange is to raise funds and finance the company’s future operations. This process of raising funds for the first time is known as the Initial Public Offering.
  • Secondary market: Once a company’s new securities have been sold on the primary market, they are then traded on the secondary stock market. In the secondary market, investors can exit their IPO investment and sell their shares. Secondary market transactions primarily include transactions in which an investor chooses to buy shares from a separate investor at the prevailing market price.

How can investors trade stocks online by opening an IIFL Demat and trading account?

As the trading process has gone digital, every investor must open a Demat and trading account. A Demat account is used to hold the stocks you buy, while the trading account is used to make trading transactions. An important step in this process is choosing a qualified stockbroker such as IIFL to open a full Demat and trading account. The process to open a Demat cum trading account with IIFL is as follows:

  1. Visit or the IIFL Markets mobile app. Click on open a Demat account »Enter basic details.
  2. You will receive a one-time password (OTP) on the mobile number.
  3. You will also receive a link to your registered email id. You must enter the OTP received on your registered email id.
  4. After verifying the OTP, complete the online account opening form.
  5. Your Relationship Manager will then contact you to obtain the necessary documentation.
  6. Once the documentation process is complete and the forms are received at HO, the account will be opened within 24 hours.

Online Stock Trading Strategies

When there is a ton of profits to be reaped, investors get carried away and place less importance on implementing the right stock trading strategies. However, getting carried away with stock trading can cost you dearly in losses. Here are some online stock trading strategies to mitigate losses and increase your profits:

  • Basics: It is always wise to educate yourself on basic stock market lingo and the factors that can affect stock prices. You can read many other IIFR blogs to learn more about the stock market. It will allow you to make informed decisions while investing.
  • Avoid the herd mentality: When it comes to the stock market, you should always make your own informed decisions and avoid investing from people’s perspective. Since everyone has a different financial situation, budget, asset allocation, diversification and risk exposure, they should never tell you where to invest without analyzing your personal factors.
  • Do not get attached: Emotions are at the heart of all bad business. You have to trust logic and research facts and figures. It may be that a stock has given you good returns before, but if the company’s numbers are bad in the future, it is never wise to own the stock based on emotional attachment.
  • Consult your stockbroker: The best people to offer financial advice are your brokers. The IIFR employs a host of expert financial advisors who analyze all financial factors before providing you with insight to enable you to make informed stock market decisions.

As India experiences a digital transformation with over 700 million internet users, investors today can benefit from the digital platforms supported by IIFR technology and user-friendly tools such as the merchant, TT Web and TT Iris. With over 25 years of experience and having served over 22 lakh clients, investors with a free Demat cum trading account are offered the best online stock trading services. All you need to do is open a Demat cum trading account with a few simple steps and you are good to go.

Q.1: How important is online stock trading?
Reply :
Online stock trading allows investors to benefit for the following reasons:

  • Smooth and fast investment process anytime, anywhere.
  • It is faster than the open auction system.
  • It is also more affordable, as stock brokers such as the IIFR offer a free demat / trading account with zero AMCs.
  • More transparent and secure because digital transactions can be better monitored.

Q.2: What are the stages of online stock trading?
Reply :
Here are the steps to online stock trading:

  • Open a Demat cum trading account with IIFL.
  • Log into the account on the IIFR website or the IIFR Marketplace app.
  • Choose the stocks you want to buy or sell.
  • Select the quantity and price at which you want to buy a stock rather than sell it.
  • Complete your stock market investment transaction by transferring money / shares, and you will receive money / shares.

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