Due to the problems that arose during the paper shares, a need arose for a system that would do share transfer, share purchase/sale, etc. an easier matter.
Therefore, in 1996, the Indian parliament passed the Derivatives Act, which allowed online trading of shares, making things much easier for the broker and investor.
In the new online trading system, an investor needs to open a demat account with one of the stockbrokers to start trading online.
A demat account is a must for an investor to trade online.
Here are some of the advantages of trading online:
1) Easier and more convenient way to own shares
2) Immediate transfer
3) Zero stamp duty on the transfer of shares
4) Safer than paper actions, for example, false signatures, delays, theft, etc.
5) Less procedures for the transfer of values
6) Less transaction cost
7) There are no “weird” problems. You can even sell a single share.
8) DP records an address change with all companies. The investor does not need to contact the companies immediately.
9) DP transmission of securities, thus eliminating the need to notify companies.
10) Automatic credit in demat accounts
11) Both equity and debt instruments can be held by a demat account.
The deposit system helps reduce the expense of new issues due to lower printing and distribution costs. Increases the efficiency of registrars and transfer agents and a company’s secretarial department. Provides better communication facilities and timely attention to shareholders and investors.
The disadvantages of online trading are mentioned below:
1) Investors, who are trading for the first time, go with the flow and immerse themselves in the technology and actually temporarily forget that they are actually using their real money.
2) There is no mentor relationship between a professional broker and an online trading account holder, leaving the investor alone to pick the right stocks.
3) Users who are not familiar with the ins and outs of brokerage software basics can make mistakes that can be costly.
4) This is like any other financial strategy, where your commitment to online trading requires research and dedication to make sure everything is up to par. You need to take some time to do your own research where you will have to overcome quite a learning curve to make some money from online trading.
