ONLINE TRADING – Do’s and Don’ts

ONLINE TRADING – Do’s and Don’ts

Trading online has become very popular in today’s time when you just need a trading account and after that you can trade comfortably while sitting at your home. Apart from comfort of trade it provides various facilities like:
• Ease of buying and selling of shares.
• Online receipt of contract notes/ trade statement for the transactions.
• Direct deposits of dividends/ bonus amount etc to account.
• Various trading tools for ease of making investment decision.
ONLINE TRADING Do’s and Don’ts

March 10th, 2010
ONLINE TRADING – Do’s and Don’ts

Trading online has become very popular in today’s time when you just need a trading account and after that you can trade comfortably while sitting at your home. Apart from comfort of trade it provides various facilities like:

• Ease of buying and selling of shares.
• Online receipt of contract notes/ trade statement for the transactions.
• Direct deposits of dividends/ bonus amount etc to account.
• Various trading tools for ease of making investment decision.


One click of mouse button is of ample importance while trading online because sometimes it is what that draws a line between your winning or loosing the game. Trading online is very interesting but you have to be a bit careful as well. The process of trading is very easy but making money is a bit tricky. All you need is a trading account and a little bit of caution to operate the same. Below are some do’s and don’ts while trading online:

Prices change at the blink of eye and the transactions are not always in real time. Moreover the speed of your internet might cause delay. So always make sure not to change your decision until the last moment. Take time examining the stock and make decision ahead of time so that you don’t loose while in panic.

An important feature of stock markets is volatility. So if you don’t keep a close eye on how your stocks move while placing an order, you might land up in losses.

Online trading is a matter of trust between you and your broker because there is no in-person contact. But you can’t leave everything on trust. Make sure your broker provides you detailed email statements and contract notes of executed trades.

Online trading provides facility to place limit orders. If you don’t have sufficient time to keep track of the stock prices, fix up a buy/sell price based on your judgement and go for limit orders. Moreover limit orders help you take ample advantage of volatile session during the day.

In addition to the brokerage rate being paid, prudent investor should always be well aware of the various Fees and commissions charged by the broker for various services offered like Mobile services, buy sell alerts, reporting, chart and other tools to facilitate easy trade as they really affect your net earnings.

For novice traders, it’s a suggestion to always trade with stop losses. Set your stop loss to level to avoid the risks associated.

Even though chances of default by a good brokerage firm are nil but a smart investor should always keep track of credit/debit of money in their bank accounts or transfer of shares to/from the demat account accordingly for each trade executed because technical reasons might lead to discrepancy which cannot be avoided.

Prevention is always better than cure. Security is another important factor for online traders. It is advisable always to follow security measures related to passwords and other personal information while login into the websites to eliminate chances of theft of identity and information.

MARGIN TRADING

What does the term term “Margin Trading” mean ?

Many times you would have come across a term Margin trading. What is trading on margin and how is it different from normal trading is what is explicated here. ‘Margin” means borrowing money from your broker to buy a stock. Now the question is why would you borrow? Investors generally go for trading on margin so to increase their purchasing power so that they can own more stock without fully paying for it. That means you will pay a part of the buy price and the broker will lend you the difference. 

• You will pay interest in addition to the usual fees.
• Broker will hold the stocks as collateral and has the right to sell that as well in case buyer doesn’t meet certain obligations as per margin rules and agreements.

Let us understand this with an example:
Suppose you wish to buy a stock with market price of Rs 50.  Under margin trading, you would be paying Rs 25 in cash while remaining 25 Rs will be lent to you by the broker (Assuming the initial margin requirement with your broker is 50%). How does this help? Let’s see.
 Suppose the price of the stock rises to Rs 75.
In case of Margin trading – Your return on the investment is 100% because you paid Rs 25.
In case of normal trading – Your return on investment is 50% because you paid Rs 50.

However there is also an equal probability of higher loss for trading on margin. Suppose the stock price falls to Rs 25. If you fully paid for the stock, you lost 50 percent of your money. But if you have traded on margin, you lost 100 percent. And on the top of that you are supposed to pay interest for the loan you have taken from the broker along with the broker’s commission.
Moreover if the investor doesn’t maintain minimum margin in his account the broker will have the right to sell all your stocks without notifying you. By this you would even loose the chance to make up your losses when the price goes up later. Below are certain terms that would make the concept more clear.

Initial margin: The proportion of total purchase price an investor is supposed to deposit for opening a margin account is referred as its initial margin and is generally 50% of the total value.

Maintenance margin: In order to keep the margin account open for doing margin trading, it is necessary to maintain minimum cash or marginable securities which is called the maintenance margin. This is just to prevent an investor from incurring a level of debt that he would not be able to repay.

Margin call: If your account falls below the maintenance margin, your broker will make a margin call to ask you to deposit more cash or securities into your account. If case you fail to meet the margin call, your broker will sell your securities so to make up for the stipulated maintenance requirement.
Lastly, for novice traders it is very important to have a realization that trading on margin can help you magnify your profit and at the same time multiplies the associated risks.

stocks investing

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Making money by Investing in stock markets of India is never an easy task. With over 5000 companies listed in NSE and BSE the choice of company to buy shares of becomes an important aspect. Here we provide news and views on prominent stocks with good management record listed in Indian stock markets. Good stocks listed in Indian stock market have consistently given better returns than many other stock markets around the world in Stock market history.

Once you decide on the stock, you need to time the markets well or you have to invest for long term to get good returns on your investment.

One needs to carefully select the stock for investment One needs to know the valuations at which to buy a stock and sell a stock. One should not love a stock which he holds. One should not think much to book profits/losses. Only growth stocks can beat markets and give you consistent returns. Tips and rumors on shares wont help you much. News and research are the real helping tools in picking a winner.



Indian stock market or for that matter the stock markets world over experiencing bad times after going through a good bull run for almost 3 years. Sensex went from 5000 points when the NDA government fell 4 years back to almost 22000 recently. At an optimistic growth rate of 35% in earnings, we should have reached around 16500 points. So 22000 was definitely a high overvalued range.

But now Sensex has fallen to 15700 points now (10.15 am 13th March 2008). The FY2009 projected EPS of Rs. 750 is discounted Almost 21 times.

Expecting the earnings to grow at 18% for next 3 years, The EPS can reach 1250 by FY 2011. Giving a discounting of 23 times (optimistic-market will give this PE for sure at some point of time) Sensex may even test 29000 to 30000 levels.

If the EPS can grow at 25%, FY 2011EPS will be at 1465 and a 23 PE will see Sensex at 33000 to 34000 levels in 2 years.

I advice staying invested in these times in quality stocks.