What is Online Stock Trading?

Online Stock Trading is trading in stocks, shares, index, other securities thru the internet.

In order to understand better you have to compare with how trading was done before online trading came into practise.

Before the internet and growth in technology, trading used to happen inside the stock exchanges. Stocks exchanges were physical buildings where buyers and sellers met to buy and sell. The sellers and buyers where Stock Brokers who were members of these stock exchanges. As an individual you could not go to the stock exchange and buy or sell stocks. If you had stocks and wanted to sell them or wanted to buy a particular stock, then you had to go to these brokers and thru them buy or sell the stocks. The brokers used to charge a commission for the transaction. The biggest disadvantage of this system was the broker could manipulate the transactions. You were solely dependant on the broker and at his mercy. Only if you were a big investor dealing in millions then you had an advantage. Small investors were at a disadvantage and this was one of the major reasons why stock trading was not popular among the masses.

In one stroke the broker was eliminated under the Online Trading. In online trading any individual could do a trade on his own. There was no need for a mediator like the broker through whom the transactions had to be executed.

If you are still not into online trading then you can follow the steps given below to become an online stock trader.

First Step: Open a Bank account. It would be preferable to open with a bank that is also providing the services of online trading or web trading.

Second Step: With the same bank with whom you have a bank account, open a demat account. A demat account is the account where the stocks you buy are credited. When you sell the stocks that you hold in your demat account they are debited. It is similar to your bank account but instead of cash transactions stocks bought and sold by you are recorded.

Third Step: With the same bank where you have a bank account and demat account, open a trading account. This account is used for carrying out the activity of buying and selling shares.

In online trading you have the biggest advantage of looking at the live market prices of your securities and then decide to buy or sell. Market orders to buy or sell get executed immediately at the prevailing market rates. Limit orders get executed if the price matches your limit price. Everything happens online, there are no middlemen to cheat you and you do the transactions of buying and selling yourself. Online trading in a way has made each individual trader a broker for himself. If you are savvy enough you can register as a broker and carry out transactions thru online trading for others. For those who find online trading not so easy and simple or those who have other business activities and want somebody else to manage their portfolio. This is a very lucrative way of earning income.