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Understanding the Inner Mechanics of Online Equity Trading

Trading
inner mechanics of online equity trading

Understanding the Inner Mechanics of Online Equity Trading

Trading | by 3 | on 2020-12-20 09:22

If you are wondering how online stocks work then you are at the right place. Understanding online equity trading is no rocket science but needs careful observation, attention to detail and the drive to stay active in trading. It is always intimidating to find an easier way to do online trading. For any newbie, the first question that will pop up in their mind is what should I know about online trading.

Trading is a great way to get into the habit of investment. The stock market follows something called the three day rule which means, any trading should be closed within three days of when it is initiated. In layman’s words this means that you will know what your trading returns and where you stand within three days of your initiation of trade. This short-term trading rule is helpful in encouraging people to trade more and invest in better stocks.

But before reaching that point there are a few things that a new trader should know. Unlike other investment forms, trades are very tricky to deal with; one needs to know the basics of investing in trades before actually getting into the game. Online equity trading is by far one of the best options that a beginner can get their hands on. So in this blog, we will understand some important mechanics of online equity trading.

Choosing the best broker for commodity trading or equity trading

The online equity trading world is vast and it is necessary to educate yourself before taking the first step. The first step in investing in online equity trading is choosing a broker. The first thing to remember is to not get carried away by fancy advertisements and calls on stock brokers. Choose someone that is approached by your circle for starters. This is the basic tip to choose the best broker for commodity trading. There are two types of brokers namely – full-service brokers and discount brokers. A full time broker is someone who takes care of your investment activities entirely. Having said that one set of such transactions are done only after your approval. On the other hand, a discounted broker offers limited services like acting as a mediator between the seller and the buyer. He carries out these services at a discounted rate.

Beginning to invest

If you are new to trading, invest in smaller and less risky transactions. Exchange-Traded Funds or ETFs are good to start with. Once you get comfortable, you can start investing in individual stocks. But a better way would be to use financial analysis ratios to understand each company’s performance and then decide if you want to invest or not. Understanding market orders and limit orders also help you in making wise decisions while investing in equity stocks.

Expenses related to stock investment

One major thing that not many talk about while investing in stocks is the expenses related to it. One such expense is brokerage or commissions fee. If you get into investment without any aid of a broker then you are good to go. On the other hand it is advisable and also a common practice to hire a broker to play on the safe grounds. Investing in ETFs or mutual funds needs a broker’s involvement. In such scenarios, they charge a minimal fee on the asset every year till you keep it along with brokerage charges. This can be often calculated by using the equity brokerage calculator. 

Another major expense is curating a ‘hypothetical situation’. This means looking into the future and forecasting any probable event that might make you run into a possible loss. This can be a situation where you ask yourself ‘What if the stocks drop by 50%?’ Would you wait for the stock to recover or would you sell or buy other stocks? This depends on both practical and emotional approach towards the trading. It is important to understand that while dealing in stocks, one has to keep aside emotional baggage. If not, it might end up in huge losses.

Your very first trading

It is as exciting as it sounds. Trading your first stock is indeed a major moment. While some get super comfortable and go with trading high end stocks, beginners who are sceptical about the whole process invest for namesake to understand how the whole process goes by. The first thing in any situation is transferring some money to your brokerage account. The next step is pretty simple – purchasing a stock that you want to trade with. Depending on if you’ve chosen a market order or a limit order, the stock execution takes time. While market order is executed immediately, limit order takes time.

How Stock exchange happens

Even before a company’s stocks are sold, they are listed in the stock exchange and this happens only when the exchange board is satisfied with the financial soundness of the company. Post this, the securities are mentioned in the exchange board for the investors to invest in them. Here’s a brief summary of the entire trading process.

The primary step in the whole process is selection of a broker. A broker as mentioned above is a person who assists in trading. Selecting a right broker is very important for your money is influenced by the association with the broker.

The next major thing is opening a Demat account which is otherwise known as a dematerialized account which should be opened with a depository participant – this can be a broker or a bank. The securities are held in electronic form. Securities can be stocks, shares, debentures, mutual funds, bonds, etc

Post this comes placing of order and is then followed by execution and settlement. These steps happen one after the other in a systematic way. 

Trading is a very interesting subject and is more interesting when put in practice.

Here are few must-know tips for trading. 

Many individuals become experts in trading over a period of time this can be because they follow certain secret mantras to trading. 

  • Analyze and understand before you take any step.
  • Stay up to date with information and trends from the stock market.
  • Learn how to forecast and interpret readings and data.
  • Economic calendar is a tool that will help you break down influential events like CPI, PMI and so on into easy-to-understand forms that will help you curate better future plans.
  • Practice and practice to become familiar with how the game works and what better can be done
  • Use online trade journals to track information like profits/loss, entry and exit points, time of open and close, position size and so on.
  • Never let your emotions take decisions. It is an extremely bad move to take decisions with regards to trading when you are not in a good mood as your mindset can heavily influence your next move on the board.
  • When it comes to trading, consistency is very important. Curate a strategy and stick to it in all of your trades.
  • It’s okay to start small. Take small steps till you get comfortable with the whole understanding of how trading works online.

While these secrets work in a great way, it is always important to do proper research and trust it. It is okay to incur losses once in a while. Everyone has to go through ups and downs in a trading game but what is important is to learn from the mistakes and make sure it does not happen again.

FAQ:

How to Calculate Brokerage in the Share Market?

Equity brokerage calculators are a tool that will help us understand how brokerage in the share market is calculated.

What is equity delivery brokerage?

If you are trying to understand what is meant by equity delivery brokerage then in simple terms, it is brokerage payable on the delivery trade that is settled as per T+2 settlement cycle. 

How to reduce brokerage costs in the stock market?

Choosing a discount broker is one best method to reduce brokerage fees. Brokerage plans like budget brokerage plan, discount brokerage plan, unlimited brokerage plan, flat free brokerage plan and zero % brokerage plans are some of the important concepts you need to understand to cut down your brokerage costs.

What are the typical brokerage charges for stock trading in India?

In India, this % stands at 0.03-0.06% of the total transaction value. On the other hand discount brokers charge flat free of Rs 20 or Rs 30 per trade.

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