Choosing a Broker and opening Demat Accounts
The cost associated with buying and selling shares are very tricky. Ask any relationship manager of a broking house about the commission they charge and he would readily come up with this answer- “.05% for intra day trades and .50% for delivery”. If you try t0 walk away, he’ll come back with his second offer of “.04% for intra day and .40% for delivery”. This can go down even to .01 for intra day and .10% for delivery!
- Tip: Although you may finally select a broker, make sure that the brokerage applied on transactions is in line with the offer he made initially. You need to check the brokerage applied by your broker periodically.
- Brokers charge an amount called ‘Annual maintenance charges’ from your account. Check those charges. If they are charging AMC every month, it eats into your invested fund. The best option is to pay a lumpsum amount while joining and get exempted from AMC being charged monthly. Generally, Borkers charge a lumpsum of around Rs 500 – 750 for a life time.
Typically, an online trading account is linked to a depository participant (DP) and bank account. Find out in which banks your broker has a tie-up with. If you do not have an account in one of those banks for trading, you may need to open one. Three-in-one account is offered by some brokers, wherein all the three accounts are opened with the same organization. This not only helps to transfer money but also to redeem the sale proceeds when you sell stocks from your portfolio. However, the two most important aspects that determine the effectiveness of e-broking platform are the trading software and customer service levels that the broker provides.
If you are going to use internet to buy stocks- The first three steps would be to-
Step 1. Understand how to place orders, modify and cancel them.
Step 2.Learn how to verify your ledger balance, get details of transactions and, in general, learn to navigate through the software.
Step3.Get a grip of the nuances of transferring money online — both to and from the trading account.
Demonstration of trading software.
You get a good demonstration of the trading software from your relationship manager before you start trading.
Since online trading reduces the human interaction you would otherwise have had in an offline account, the customer service team plays a key role in redressing any problem. Remember to enquire about the customer service to existing clients to get an idea of the competency of the team.
Phone trading option
Find out from your prospective brokers on how they usually handle a `market meltdown’. This occurs when the market rises or falls rapidly and the broker gets loaded with orders five-10 times the size of normal orders. The internet is also not reliable all the time. Net connections can get disconnected or disturbed due to several reasons. In such cases, the broker should provide you with an alternate means of placing orders. Most brokers offer what is called phone trading to help their clients during such an untoward exigency. However, these phone trading options are sometimes charged.
Pre market / after market orders.
Find out if the broker will give you an option to place orders before the market opens for the next day. Commonly called the “after market orders”, you can use this option to place your order the previous day itself when you foresee a busy day ahead.
Try to get details regarding the various trading products that are offered by the brokers and find the one that suits your profile. While some brokers offer a variety of trading products others offer only the basic trading product.
An offline account is the traditional broking account, wherein you place orders with your dealer either by walking to the office or over the phone. Traders and high net worth individuals with a need for fast and professional execution of orders can consider such options. Since the dealer plays a key role in this model, find out if your dealer is good at execution of orders and is pro active in information sharing. Remember the dealer’s experience in the market is also a crucial factor. You might also want to negotiate on the trading exposure and the fee that is charged. Unlike the online model, offline brokers are more flexible with the exposure and the brokerage charged.
Online trading is nothing but trading via the Internet with the help of trading software provided by the broker. The trading platform may be a source of great confusion to them. It is important that you get a firm grip on the trading platform since it provides all the necessary tools to do technical analysis. You can also transfer funds online from your bank account to your share trading account with the click of a button.
The advantages of using online trading are:
- Fully automated trading process which is broker independent.
- Access to advanced trading tools to perform technical analysis
- Investors have direct control over their trading portfolio.
- Ability to trade multiple markets and/or products (you can trade in BSE/NSE)
- Real-time market data.
- Faster trade execution ( very crucial if you are a trader )
- Easy to operate and manage account
- No geographical limits.(whether you stay in New Zealand or Dubai you can invest in Indian share market through online trading platforms)
Our discussion is primarily based on the general features provided by a good online trading platform. It’s important that you check the quality and speed of the trading software provided to you by the broker.
LOGIN ID AND PASSWORD:
Your online trading platform should be protected by a login id given to you by the broker and a password of your choice. Password should be changed frequently. Some software prompts you to change your password every 15 days. Further, the facility to ‘lock’ the trading software to one computer would be an additional security measure. With this facility, you will be able to login only from one particular personal computer.
THE MARKET SCREEN:
For a beginner, the market screen might look like a jungle of numbers. It’s nothing to be confused about.
Market screen is the most important window that will help you get your trading done. This window gives a tabular representation of the current market position for selected shares. Each share makes up a row of data that contains the scrip name, its last traded price, last traded quantity, best bid rate, best offer rate, total volume etc. Market Watch window is highly configurable and you can decide which columns are to be viewed and which not, whether you require row or column separators, determine the size of all rows or each column, the color used to display data etc. There are a host of options available on a pop-up menu that can be accessed by right clicking on the Market Watch window. All these windows will be updated dynamically in real time and you need not ‘pull’ or refresh any information. It’s all real time updated. In fact you are in live market.
It will take only one day to understand the market screen. Market Watch window is the prime controlling window from where you can launch your trading actions. You buy or sell a share by clicking on the specific share on the market screen.
Trading screen should have indices displayed at a convenient location on the screen.
It should display all popular Indices like Sensex and Nifty. The indices display should be capable of being customized to show other indices which you follow. An investor should keep track of the market indices so as to get an overall picture of the market sentiment.
Reports comprise of Order Book, Trade Book, Net Positions, Margin, Exercise Book and Holdings. In any trading terminal, all these reports are dynamically updated without the need to refresh or pull information. From the Reports window you can ‘Modify’, ‘Cancel’, ‘Square Off’ or ‘Exercise’. The appropriate buttons will be enabled/ disabled depending on which action can be taken based on the currently selected row. You can save these reports to a file either in text or CSV format.
A Good trading software will provide the following facilities to chart:
- Streaming intraday tick-by-tick charts & historical data.
- Ability to chart multiple companies and open unlimited charts. Simultaneously.
- Unique draw tools including trend line customization and Fibonacci tools.
- Different chart type options such as Line, Bar and Candlestick.
- Lots of analysis options including indicators such as MACD, RSI, Williams % R etc for price and volume panels. There are at least 14 indicators that are useful to a trader.
- Facility to save chart as JPEG file.
Market analyser feature would provide top traded, top gainers and top losers with % change, value and total quantity. It would also provide the list of shares that have touched their 52 week High or 52 week low. It would also help to analyse all quotes and extract those where quantity traded exceeds a given figure or transaction value exceeds a given value. This helps you identify large trades and can give you vital clues to where or in which scrip activity is currently happening.
Traditionally stock trading was done through stock brokers, personally or through telephones. Busy phone lines, miss communication resulting in confusion and sometimes loss to the investors created lot of practical problems in trading. Information technology has helped stock brokers in solving these problems with Online Stock Trading. Online stock trading sites offer investors access to a variety of tools and research that just a few years ago were only available through full service brokerage accounts. Online stock trading is done through ‘terminal’ installed in your personal computer. This online terminal is provided by the brokerage house .so, you can trade in shares from the comfort of your home.
A good online stock terminal would offer you the following :
- Fast trade execution with instant trade confirmation.
- Live streaming quotes and price watch on any number of stocks.
- Intra day charts, updated live, tick-by-tick.
- Live margin, position, marked to market profit & loss report.
- Set any number of price alerts on any number of scrips.
- Flexibility to customize screen layout and setting.
- Facility to customize any number of portfolios & watch lists.
- Facility to cancel all pending orders at one click.
- Facility to square off all transactions at one click.
- Top Gainers, Top Losers, Most Active, updated live.
- Index information; index chart, index stock information live.
- Market depth, i.e. Best 5 bids and offers, updated live for all stocks.
- Online access to both accounts and DP to check live updated Order and Trade Book.
- Facility to place after market orders.
- Online fund transfer facility from your Bank account.
- Online intra-day technical calls.
- Historical charts and technical analysis tools
THINGS TO DO BEFORE OPENING A TRADING ACCOUNT
- Ask for Demo:Contact the broker who provide online trading service and ask him to give you a demo of product.
- Check if the broker trades in multiple stock exchanges. Usually most of the Online Trading Websites trade in NSE and BSE in India.
- Check the integration of Brokerage account, Demat account and Bank account.
- Compare brokerages with other peer companies.
Standard document required to open an Online Trading Account
- Proof of residence (Address proof-any one from the list)
- Driving license
- Voter’s ID
- Photo credit card
- Photo ration card
- Utility Bill (Telephone, Electricity etc)
- Bank Statement
- Proof of identity(any one from the list )
- Driving license
- Voter’s ID
- Photo ration card
- PAN Card
- Two photographs
- Bank statement and two cheques-one cancelled and the other for making initial investment.
ADVANTAGES OF ONLINE TRADING
- Typically online trading requires the investors to pay lower brokerage.
- In case of online trading there is no middle man involved.
- In case of online trading there is no paper work involved.
- Trading on a real time.
- Investors can deal with different stock exchanges with single online trading account.
- Mutual funds and IPO’s can be bought and sold on line.
- Point Blank
- Financial Discipline for all.
- Investing Basics
- Shares & Stock Markets
- Introduction to Financial Statements
- Financial ratios.
- Stock investing strategies
- Technical Analysis I
- Technical analysis II
- Before Picking up stocks..
- Choosing a Broker and opening Demat Accounts
- Make your debut !!
- More ... from stock markets.
- Valuation of shares
- Futures and Options - The basics.
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