1

CONTEMPORARY ISSUE ON SEMINAR

A STUDY ON

“Online Trading”

Session: 2009–11
Presented at

Submitted By: - Submitted To:-

Manish Kumar Mr. Rajat Mendiratta
MBA II Sem.
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Acknowledgement

The beatitude, bliss & euphoria that accompany successful completion any task
would not be completed without the expression of appreciation of simple virtues
to the people who made it possible.

So, I take my immense pleasure in expressing a whole hearted thanks to all the
faculty members who guided me all the way making this project successful.

It is my privilege to express a deep sense of gratitude and thanks to Mr. RAJAT

MENDIRATTA for providing us various information directly related to project.

I am also thankful to Mrs. MAHIMA RAI (H.O.D.) for her guidance & cooperation
in this work.

I extend my gratitude and thankfulness to Apex Institute of Management &

Science.

Date:11/05/2010 Submitted By:

(Manish
Kumar)
Place: Jaipur
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Preface

The underlying aim of the seminar on contemporary issue as an integral part of

MBA program is to provide the students with practical aspects of the organization
– working environment.

Such type of presentation helps a student to visualize and realize about the
congruencies between the theoretical learning in the premises of college and
actual followed by the organization. It gives the knowledge of application aspect
of the theories learnt in the classroom.

The seminar project in Online Trading is a complete experience in itself, which

provide me with the understanding. This has become as inspirable of my
knowledge of management being learned in MBA program.

Executive Summary
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There were times when man was a wanderer or a normal. He himself had to go place to
place in search of food, water and now everything is available at your doorstep just at the
click of the mouse. The growth of information technology has affected almost all sectors
of life. Internet has enabled us to get every information at our doorstep. When Internet
has affected all sectors he could “stock markets” the most important player of the
economy, has remained far behind? Like all other sectors Internet has set its feet in the
stock markets also.

All of these positive features of internet trading may lead the unwary investor to believe
that Internet trading is a way to take control of their finances and save more money in the
process. Unfortunately, this is not always the case. The advantages of Internet stock
trading have also its weaknesses and these weaknesses present significant drawbacks for
the average investor.

First and foremost, the average investor is not an expert in the financial markets. There is
a danger for allowing the autonomy of online trading to hull you into the belief that you
are an expert investor. An online investor sitting at home at a personal computer also
foregoes proper investment advice and financial planning, perhaps among the most
valuable services provided by traditional brokers.

Contents
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1. Introduction

(A) Capital Market

1
(B) Stock exchange
4

2. Online Trading
8

3. Research Methodology
30

4. Conclusion
38

5. References
39
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Chapter 1
Introduction to the capital market

The capital market is the market for securities, where companies and the government
can raise long term funds. The capital market includes the stock market and the bond
market. Financial regulators ensure that investors are protected against fraud. The capital
markets consist of the primary market, where new issues are distributed to investors, and
the secondary market, where existing securities are traded.

Capital market thus plays a vital role in channelizing the savings of individuals for
Investment in the economic development of the country. As a result the investors are not
constrained by their individual abilities, but by the abilities of the companies, which in
turn enhance the savings and investments in the country, liquidity of capital market is an
important factor affecting growth.

Since projects require long term finance, but on the other hand, the investor may not like
to relinquish control over their savings for a long time. A liquid stock market ensures a
quick exit without incurring heavy losses or costs. Thus development of efficient market
system is necessary for creating conductive climate for investment and economic growth.

Capital market Segment – Primary And Secondary

Broadly , the comprises of two segments – the new issue market which is commonly
known as primary market and the stock market which is known as secondary market.

Primary
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A primary offering, such as with a corporate bond, means you are buying it
directly from the issuer, at par value, usually. A secondary market is where you
sell or buy existing issues. I.E. If you bought a bond last year, now need to get
your principal, you can sell it in the secondary market. You may not get par value.
If rates are up since you bought the bond, then you will likely have to sell it at a
discount to be able to get rid of it. If rates have fallen since you bought it, you
could get a premium for it.

Secondary

The market where securities are traded after they are initially offered in the primary
market. Most trading is done in the secondary market. To explain further, it is trading in
previously issued financial instruments. An organized market for used securities. Bombay
Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter
markets, residential mortgage loans, governmental guaranteed loans etc.

Secondary Market refers to a market where securities are traded after being initially
offered to the public in the primary market and/or listed on the Stock Exchange. Majority
of the trading is done in the secondary market. Secondary market comprises of equity
markets and the debt markets. For the general investor, the secondary market provides an
efficient platform for trading of his securities. For the management of the company,
Secondary equity markets serve as a monitoring and control conduit—by facilitating
value-enhancing control activities, enabling implementation of incentive-based
management contracts, and aggregating information (via price discovery) that guides
management decisions.
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INDIAN CAPITAL MARKET AT GLANCE

180 Trading of shares of east India company in Kolkata And
0 Mumbai

185 Joint stock company came into existence

0

186 Speculation and feverish dealing in securities

0

187 Formulation of stock exchange of Mumbai

5

189 Formulation of Ahmadabad stock exchange

4

1.
2020th century

1908 Formulation of Calcutta stock exchange

1939 Formulation of Lahore and madras stock exchange

1940 Formulation of U.P and Delhi stock exchange

1956 Securities contract and regulation act enacted

1957 Scam of Haridas Mundhra

1988 Securities and exchange board of India set up

1991 Scam of MS Shoes

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1992 SEBI given power Under SEBI act,1992

1993 Formation of National stock exchange

1995 HARSHAD MEHTA Scam

1995 SESA GOA Scam

1997 CRB scam

1998 BPL And Videocon Scam

21st century

2000 Depositories came into existence (electronic form of

shares)

2001 Ketan Parekh scam

2002 Start of rolling settlement and banning of Badla trading
2002 Introduction of T+3 settlement in April
2003 Introduction of T+2 settlement in April
2005 BSE Sensex touches all time high 6954 in January
2006 BSE Sensex touches all time high 12500,the highest
intraday fall of 1100
2007 BSE reaches the level of
2008 BSE touches all time high in January 2008
2008 Sensex saw its highest ever loss of 1,408 points at the end
of the session.
2008 Sexsex saw its 15 month low,from its all time high
2009 Sexsex saw its down trend & highest ever loss because of
Satyam case.

BRIEF ABOUT THE STOCK EXCHANGES

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Stock Exchange is a market like any other centralized market where both buyers
and sellers come and conduct their business of purchase and sale of shares &
securities. In other words, it is a market place for shares and securities where
trading takes place in a controlled and protected environment.

MEANING OF STOCK EXCHANGE

A stock exchange, share market or bourse is a corporation or mutual organization which

provides "trading" facilities for stock brokers and traders, to trade stocks and other
securities. Stock exchanges also provide facilities for the issue and redemption of
securities as well as other financial instruments and capital events including the payment
of income and dividends. The securities traded on a stock exchange include: shares issued
by companies, unit trusts and other pooled investment products and bonds. To be able to
trade a security on a certain stock exchange, it has to be listed there. Usually there is a
central location at least for recordkeeping, but trade is less and less linked to such a
physical place, as modern markets are electronic networks, which gives them advantages
of speed and cost of transactions. Trade on an exchange is by members only. The initial
offering of stocks and bonds to investors is by definition done in the primary market and
subsequent trading is done in the secondary market. A stock exchange is often the most
important component of a stock market. Supply and demand in stock markets is driven by
various factors which, as in all free markets, affect the price of stocks (see stock
valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off exchange or
over-the-counter. This is the usual way that bonds are traded. Increasingly, stock
exchanges are part of a global market for securities.

CONCEPT OF SHARE TRADING

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The concept of share broking emerged after the establishment of the joint stock
companies. The ownership of the companies was divided into small parts and that every
part was called share. So, the term “Share” denominates some part in the ownership of
the company. The shares are freely transferable subject to the some certain restrictions.
When the need was felt to sell the shares by the owner of the shares, it was difficult to
find out the buyers of the shares who want to buy the shares at the price the seller want to
sell. At that time a need was felt to bring the buyers and sellers on a common platform.
To solve this problem, a group of persons came into picture, which used to bring the
buyers and sellers together for the trade of the shares. These persons are called the share
Brokers who find the persons who wish to buy or sell their securities. The whole process
of finding the buyers and sellers of the securities by the brokers is called the Share
Broking.

The origination of the Indian securities market may be traced back to 1975, when 22
enterprise brokers under a Banyan tree established the Bombay Stock Exchange (BSE).
Over the last 130 years, the Indian securities market has evolved continuously to become
one of the most dynamic, modern international standards both in terms of structure and in
terms of operating efficiency.

OPERATIONS OF LUDHIANA STOCK EXCHANGE

TURNOVER
Ludhiana Stock Exchange is one of the leading Stock Exchanges among the Regional
Stock Exchanges of the country, and has been providing trading platform for the
investors situated in Punjab, J&k, Himachal Pradesh & Chandigarh. At present, it has 357
listed companies and among them, 231 are listed as regional companies. It had been
generating significant amount of the business in the secondary market. It recorded a peak
turnover of Rs.9154 crores during the year 2000-2001. The structural changes that took
place in the recent past in the Capital Market of the country had a negative impact on the
trading volume of the Regional Stock Exchanges. There has been a significant reduction
of turnover during the financial year 2001-2002, but the reduction in the turnover of the
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Exchange has been more than adequately compensated by substantial rise in the turnover
of LSE Securities Limited, a subsidiary of Ludhiana Stock Exchange.

LISTING

Listing is one of the major functions of a Stock Exchange wherein the securities of the
Companies are enlisted for trading purpose. Any Company incorporated under
Companies Act,1956, coming out with an IPO, has to mandatorily list its shares on a
StockExchange.
The Listing Department of Ludhiana Stock Exchange deals with listing of securities,
further listing of issues like bonus and rights issues, post listing compliance of the
companies which are already listed with Ludhiana Stock Exchange. The Companies
desirous of listing its securities on the Exchange have to sign a Listing Agreement
with the Stock Exchange. After getting the listing approval, the Company has to
ensure and report compliance of the post listing requirements. The listing section of
the LSE monitors the post-listing compliance of all the listed companies and follows
up with the companies,which are found deficient in compliance.

Functions of Stock Exchange

Stock exchange is established into the main purpose of providing a market place for the
members to deal in securities under well laid down regulations and to protect the interest
of the investors. The main functions of stock exchange are;

1. It brings the companies and investors together so that the investors can put risk
capital into companies and thus, companies can use the capital.
2. It provides an orderly regulated market for securities.
3. It provides continuous, ready and open market for selling and buying securities.
4. It promotes savings and investment in the economy by attracting funds from the
investors.
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5. It facilitates take overs by means of acquiring majority of shares traded on the

stock market.
6. It acts as a clearing house of business information.
7. It motivates the managers of well reputed companies, to retain their shares in ‘A’
group, to improve performance.
8. It induces the managers to improve performance for converting non-specified
shares into specified shares in the exchange.
9. It enables the investors to evaluate the net worth of their holdings.
10. It also allows the companies to float their shares in the market.

Chapter 2

On Line Trading

Meaning of Online Trading

“Change is the law of nature”. There were times when man was a wanderer or a
normal. He himself had to go place to place in search of food, water and now everything
is available at your doorstep just at the click of the mouse. The growth of information
technology has affected almost all sectors of life. Internet has enabled us to get every
information at our doorstep. When Internet has affected all sectors he could “stock
markets” the most important player of the economy, has remained far behind? Like all
other sectors Internet has set its feet in the stock markets also.

Internet trading commissions are clearly posted on the websites of the various services,
and are typically a fixed rate charge, depending upon the type of security being traded
and the size of trade. In theory, therefore, an Interest investor always knows what
commission he is being charged on each trade. Internet investors can take as much time
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as they would like to take prior to placing a trade order. Similarly the online investor
likely does not have to worry that his broker is making unauthorized trades. Since there is
no individual broker making a commission, the only person who is authorized to trace in
a the account is the actual investor. Furthermore, the internet investor can never become a
victim of excessive trading (where for the broker) since the investor maintains total
control over the number of transactions which take place in the account.

All of these positive features of internet trading may lead the unwary investor to believe
that Internet trading is a way to take control of their finances and save more money in the
process. Unfortunately, this is not always the case. The advantages of Internet stock
trading have also its weaknesses and these weaknesses present significant drawbacks for
the average investor.

First and foremost, the average investor is not an expert in the financial markets. There is
a danger for allowing the autonomy of online trading to hull you into the belief that you
are an expert investor. An online investor sitting at home at a personal computer also
foregoes proper investment advice and financial planning, perhaps among the most
valuable services provided by traditional brokers.

There are, of course, additional risks relative to performing transactions over the Internet
especially on a shared computer. Those people whom investors have provided their
account number and password can freely trade that account while the investor will have
little, if any, resource against the brokerage firm for the breach of security.

When was online trading introduced in INDIA?

Online trading started in India in February 2000 when a couple of brokers started offering
an online trading platform for their customers.

ONLINE TRADING BY NSE & BSE

The central computer located at the Exchange is connected to the workstations of the
Brokers through satellite using Very Small Aperture Terminals (VSATs). Orders placed
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at the Brokers' workstations reach the central computer and are matched by the computer
based on price and time priority.

Both the exchanges have switched over from the open outcry trading system to a fully
automated computerized mode of trading known as BOLT (BSE On Line Trading) and
NEAT (National Exchange Automated Trading) System. It facilitates more efficient
processing, automatic order matching, faster execution of trades and transparency. The
scrips traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups.
The 'A' group shares represent those, which are in the carry forward system (Badla). The
'F' group represents the debt market (fixed income securities) segment. The 'Z' group
scrips are the blacklisted companies. The 'C' group covers the odd lot securities in 'A',
'B1' & 'B2' groups and Rights renunciations. key regulator governing Stock Exchanges,
Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants
in Indian secondary and primary market is the Securities and Exchange Board of India
(SEBI) Ltd.

DIFFERENCE BETWEEN ONLINE AND OFFLINE

TRADING

Nevertheless, with all the convenience of online trading there are still investors who
prefer the old fashion way of offline trading. Offline trading has lost some popularity but
it is still the main form of investing. Offline trading offers many benefits as well.

1. The one benefit that an investor appreciates the most is that they are not alone when
making investment decisions.

2. There are experienced and professional brokerage companies that handle their
investments for them.

3. Investors are not faced with the challenge of making these vital investment decisions;
especially, if they do not have the experience necessary to make the appropriate
investments.
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4. Also, there is someone there to answer any questions that may cause concerns. Not to
mention, with offline trading mistakes are less likely to take place. No one wants to throw
their money away or stand by and watch someone else throw their money away. It may
be wise to hire a professional to assist you in making the correct investment decisions if
you feel you lack the knowledge necessary.

Points of difference between online trading and ofline trading are

as follows:

1. Online trading is very expensive as compare to manual trading or offline trading.

2. Online trading consumes less time as compare to manual trading.

3. Online trading has very helpful to finding the records easily but offline trading takes
more time to finding the records.

4. In the help of online trading, there is no chance of any errors while doing the trading.
in offline trading there are some errors exist like barriers of communication .

5. With the help of online trading, we know the international market rate of share very
easily.

DEMATERIALISATION OF SHARES

Dematerialization is the process where in shares certificates or other securities held in

physical form are converted into electronic form and credited to demat account of an
investor opened with a depository participant. SEBI has made compulsory trading of
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shares of all the companies listed in stock exchanges in demat form with effect from 2nd
January 2002.The procedure of opening a demat account with DP is similar to opening an
account with a bank.

ELECTRONIC SETTLEMENT OF TRADE

A. Procedure for purchasing dematerialized securities

The procedure for purchasing dematerialized securities is also similar to the procedure for
buying physical securities.

1. Investor instructs DP to receive credits into his account in the prescribed form.
There may be one time standing instruction or separate instruction each time to
receive credits.
2. Investor purchases securities in any of the stock exchanges linked to depository
through a broker.
3. Broker receives payment from investor and arranges payment to clearing
corporation.
4. Broker receives credit to securities in clearing account on the payout day.
5. Broker gives instructions to DP to debit clearing account and credit client’s
account. Investor receives shares into his account by way of book entry.

B. Procedure of selling dematerialized securities

The procedure for selling dematerialized securities in stock exchanges is similar as
selling physical securities. The only major difference is that instead of delivering physical
securities to the broker, the investor instructs his DP to debit his demat account with the
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number of securities sold by him and credit the brokers clearing account. The procedure
for selling dematerialized securities is given below:

1. Investor sells securities in any of the stock exchange linked to depository

through a broker.
2. Investor instructs his DP to debit his demat account with the number of
securities sold and credit the broker’s clearing account.
3. Before the pay-in-day, broker of the investor transfers the securities to
clearing corporation.
4. The broker receives payment from the stock exchange.
5. The investor receives payment from the broker for sale of securities in the
same manner as received in case of sale of physical securities.

REMATERILISATION OF SHARES

Rematerialization is the process of conversion of electronic holdings of securities into

physical certificate form. For rematerilisation of scrips, the investor has to fill up a remat
request form (RRF) and submit it to the DP. The DP forwards the request to depository
after verifying the investor’s balances. Depository in turn initiates the registrars and
transfer agent or the issuer company. RTA/ Company prints the certificates and
dispatches the same to the investor.

Advent of online trading

The history of e-trading goes back to 1983, when a doctor in Michigan placed the first
online trade using E*TRADE technology. what began with a single click over 16 years
ago has now taken the world by storm. The concept was visualized by one bill porter, a
physicist and inventor with more than dozen of patents to his credit, who provided online
quotes and trading services to fidelity, Charles Schwab, and quick and Reilly. This led
bill to wonder why, as an individual investor, he had to pay a broker hundreds of dollars
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for stock transactions. with incredible foresight, he saw the solution at hand, some day
everyone would own computers and invest through them with unprecedented efficiency
and control. And today his dream has become a reality.
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SHARE OF ONLINE TRADING IN TOTAL CASH TURNOVER OF

NATIONAL STOCK EXCHANGE

TABLE-1(year 2008)

ONLINE TURNOVER
MONTH CASH TURNOVER RATIO
(RS. CRORES)
January 1,48,829.84 1,130.49 0.76
Februmy 1,35,932.23 1,573.62 1.16
March 60,226.21 849.81 1.41
April 35,615.63 268.9 0.76
May 48,329.11 343.92 0.71
June 42,783.00 238.47 0.56
July 27,227.76 401.68 1.48
August 29,417.15 388.98 1.32
September 35,322.82 453.58 1.28
October 35,326.454 604.17 1.71
November 42,132.23 805.86 1.91
December 54,467.79 1,048.24 1.92
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Internet Based Trading through Order Routing Systems

Internet based trading on conventional exchanges, uses the Internet as a medium for
communicating client orders to the exchange, through broker web sites. Broker’s web sites may
serve a variety of functions. These may include;

• Allowing the clients to directly trade through investors;

• Advertise the broker dealers’ services to potential investors;
• Offer market information and investment tools similar to those offered by information
vendor or SRO web sites;
• Offer real-time or delayed quote information, continuously update quotes while the
user visits other sites, or allow investors to create a personal stock ticker;
• Provide market summaries and commentaries, analyst reports and trading strategies
and market data on currencies, mutual funds, options, market indices and news; and
• Offer investors access to portfolio management tools and analytic programs;
• Information on commission and fees; and
• Account information and research reports.

In an Order Routing system, a broker offering Internet trading facility provides an electronic
template for the customer to enter the name of the security, whatever it is to be bought or sold,
the quantity and whatever the order is a market or limit order. Once the broker’s system receives
this information.

Use of Internet as Alternative Trading Systems (Provision for price discovery

and matching outside conventional exchanges)

In foreign jurisdiction, Alternative trading systems have been developing outside

conventional securities markets, which provide investors with additional proprietary electronic
trading facilities for securities that are traded principally on securities exchanges, or other
organized markets. They have price discovery functions, matching systems and crossing systems.
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The systems that are currently in use in outside jurisdictions are closed systems and are not
accessible to the general public through the Internet. The securities markets regulators abroad the
maintained flexible and open policies designed to encourage innovation in the secondary
securities markets. As a result, a number of market participants, usually broker-dealers, have
developed computerized “alternative trading systems” by which the system centralize, display,
match, cross or otherwise execute trading interest.

Use of Internet for making Initial Public Offerings

Issues of securities of using the Internet to communicate directly with their shareholders,
potential investors and analysts by disseminating corporate information. In foreign jurisdiction,
they are also using the Internet to communicate to the public for the following:

• Public offerings;
• Private offerings; and
• Disclosure and communication
Issuers are using the Internet to market themselves to potential investors. The Internet is also
being used for fulfilling necessary disclosure requirements, for disseminating the prospects in
electronics form and even for receiving share applications in public issues electronically. In
India, SEBI has taken initiative in permitting use of the network of stock exchange for collection
of investor applications in public offerings by the issuer companies.

FEATURES OF ONLINE TRADING: The Online Trading is having many features

which make it most suitable for the investors to go for. Some of these features are as follows:

The Internet can provide a new sense of control over your financial future. The amount of
investment information available online is truly astounding. It's one of the best aspects of being a
wired investor. For the first time in history, any individual with an Internet connection can:

• Know the price of any stock at any time

• Review the price history of any stock in chart format
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• Follow market events in-depth

• Receive a wealth of free commentary and analysis about stock markets and
the global economy
• Conduct extensive financial research on any company

One of the great appeals of using an online trading account is the fact that the account belongs to
you, and is under your direct control. When you want to buy or sell stock, you no longer need to
call your broker on the phone; hope that he is in the office to place your order; possibly argue
with the broker about the order; and hope that the transaction is executed instantly.

At the most basic level, an online trading account gives you more agility in buying and selling
stocks. This is through sophisticated information streams, dedicated trading platforms and
sophisticated tools for accessing the markets.

Every broker house aims at providing the investor with the best price available. Also due to the
high level of transparency with regard to display of information relating to the specific stocks
and company profiles, you will be able to get the best quote for your orders.

Online trading offers you greater transparency by providing you with an audit trail. This involves
a complete integrated electronic chain starting from order placement, to clearing and settlement
and finally ending with a credit into your depository account. All these stages are subject to
inspection, thus bringing in transparency into the system.
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Online trading integrates your bank account, your trading account and your demat accounts,
which leads to easy and paperless trading for you.

You as an Investment online customer will be able to execute the entire trading transaction, right
from logging on to our site, to the execution and settlement of your bank account, in a very short
period of time.

Trading on the net, gives even the smallest retail investor access to information that earlier was
available only to the big traders. This provides a level playing field for all investors in the
securities market.

This method of trading reduces the settlement risk for the investor, as in this case all short sell
orders are squared off at the specified cut-off time and not allowed to be carried forward.

In the case of a demat account your demat account is checked by us before executing your sell
transaction. This reduces the settlement risk for the buyer, who is assured of the delivery of the
securities and for you as a seller of the securities

Every trade is confirmed immediately and you will receive an on-screen confirmation following
every trade with full details for your records. This avoids costly errors that would have been
discovered when it is too late.

Your Bank, Depository and online account are integrated for your convenience. Various broking
houses provide access to many of the popular banks.
 25

Broking houses work hard to keep our account and personal information secure. From updated
security technology to advanced fraud prevention measures, they have the people and tools in
place to provide a strong defense against electronic scams and fraud.

BENEFITS OF ONLINE BROKING

1) Less Costly:

The most significant advantage of the Online broking is the cost reduction in the brokerage. Due
to the power of the Internet one has the privilege of becoming the clients of really large
brokerages with the benefits of enjoying the low charges hithelio before enjoyed only by the big
players. As the DP account has got linked to the trading account most players do not charge a
minimum transaction cost thus truly allowing one to buy a single share and achieve meaningful
rupee price averaging whatever be your buying power.

2) Peace of Mind:

One can never have complete peace of mind but online investing does away with the hassles of
filling up instruction slips, visits to the broker for handing over these slips and consequent costs.

3) Keeping Records:

The site one trades on keeps a record of all transactions down to unexecuted orders and cancelled
orders thus keeping one abreast of all your transactions 24 hours a day. No paperwork means
more time at one’s disposal for research and analysis.

4) Access to Information and investment Tools:

Most online investing sites have a wealth of information for their registered members. This
includes research reports, results, analysis and even gossip and the buzz in the market.

5.) Unparalleled Liquidity:

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The. bank account linked with the trading account invariably has an A TM free. Most partner
banks offer Internet banking as well. This results in one’s money becoming available to him
whenever he like from his trading account. Conversely in case he spot an opportunity in the
market he can immediately allocate money from his savings account to his trading account and
make profits.

6.) Unparalleled Safety:

Most sites are secure using 128-bit algorithms -highest available commercially anywhere in the
world. Moreover even if somebody broke in and tampered with one’s account the money from
the stocks he sold or the stock bought from the money in his account is in his account only.

7.) Reduces the settlement risk:

This method of trading reduces the settlement risk for the investor, as in this case no Short sale is
possible i.e. the seller will not be able to sell the securities unless he has their actual possession.
In the case of a demat account (required for an online transaction), when a seller wants to sell the
securities, his demat account is checked by the Depository Participant before executing the sale
transaction. This reduces the settlement risk for the buyer, who is assured of the delivery of the
securities.

8.) Offers greater transparency:

Online trading gives greater transparency to the investors by providing them an audit trail. This
involves a complete integrated electronic chain starting from order placement, to clearing and
settlement and finally ending with a credit to the depository account of the investor. All these
stages are subject to inspection, thus bringing in transparency into the system.

9.) Ease of trade:

It is the ease of doing the trade through net, with a click of mouse, one can buy or sell any share
that is dematerialized.

Other than the above-mentioned advantages, Internet trading provides some additional
advantages to the investors, brokers and also helps the nation to channelize the resources. Net
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trading would increase competition in the market hence increase in the bargaining power of the
investors. The entire communication between the investor, broker and exchange would take
place within milliseconds.

PROBLEMS OF ONLINE BROKING

There is a flip side to everything and online trading is no exception.

4%
14% 21%

More Costly
Lack Of Know ledge
11% Loyalty to Traditional Broker
Lack of Trust
Slow Speed
23%
Other

27%

Chart

Source:- www.lse.co.in

27% Loyality is of traditional broker

23% people says that online trading is more costly than manual trading.

21% people not prefer online trading because of lack of knowledge.

So, the main problems of online trading are as follows:

1.) "Server not found":

 28

This may appear on one’s screens when he is desperately trying to get out of an unprofitable
position. Some of the online sites are providing a telephone number for use in case their sites are
overloaded or their server down.

2.) Connectivity of the Broker with NSE:

Recently ICICI Direct had a connectivity problem with the NSE for two and halfhours during
trading hours. This problem is rare but be alive to its possibility.

3.) Cyber attack:

In the event of a malicious attack on the systems of one’s broker he is protected only if the
company is taking proper precautions against such attacks and if proper backup is regularly been
taken. He may like to choose a brokerage that has a stated security policy and contingency plan
in place.

4.) Non-availability of a seamless interface:

As a client one will access the NSE through a server of the online brokerage and this may
involve queuing delays. If a number of client access the server the server takes its own time
sending the orders to the NSE server. He must check out the seamlessness of this interface before
selecting an online brokerage. The faster the orders are processed the more seamless is the
interface.

5.) Non- availability of personalized advice:

If one like to ask his broker "Aaj kya achcha lag raha hai" he may not be able to do so. If he
want advice on a particular stock in his portfolio he may not even be able to get that.

6.) Margin:

If Internet trading alone is not fast and furious enough; many people are trading on margin. That
is where the brokerage firm lends you money by leveraging his account, allowing him to buy a
large amount of securities by putting up only a small amount of money. He may have forgotten
what he read in the small print of his agreement, but the brokerage firm has the right to change
 29

the maintenance margin requirements without any warning or notice to him. In fact, the firm has
the right to liquidate his securities holdings (and it can pick and choose which ones) without any
notice to one if he fail to meet the margin call. And there he was leveraged to the hilt, hoping to
hit a home run when he discovered that he is required to make a large deposit that he cannot
make. The next thing one know, the firm is selling off his securities at a point in time that is not
the best for him. These are the perils of trading on margin.

7.) Little use of advisory services:

The advisory services being promised by the brokers would be of little use to investors looking
for an insight into the market. Many would not like to rely on research reports, which are there
for all. So, net investors will have to do their own research and take their own decision, whether
wild or wise.

8.) Increased charges:

Some of the brokers are of the view that they would have to provide advisory services to the
customers. But with increased volumes, they will have to follow the international practice of
charging a little more than the normal charges from a customer looking for personal advice.

WHY PEOPLE ARE BENDING TOWARDS ONLINE TRADING

Several broking houses now offer online trading facilities. You can trade online with e-
brokerages such as ICICI Direct, Kotakstreet, India bulls, India info line’s 5paisa.com and
HDFC securities.

If you are already comfortable trading with your regular broker, here are few reasons why you
may consider switching to trading online, or at least another avenue of trading. an obvious
advantage of online trading is that your transaction would be virtually paperless. Your trading
account would be linked to your demat and bank account, ensuring a smooth transaction process.
 30

This is especially helpful in the extent T+2 settlement system, where you have just two days to
settle your transaction.

The normal process of issuing of delivery note, in case of a sale, or arranging for a payment in
case of purchaser of shares, is all taken care of the minute your order is executed online. The
absence of manual intervention ensures that you are completely in control of all transaction.

There is also little room for error, as your order is always confirmed before it is executed. You
can also make better decision as you have a clear record of all your previous transaction. When
you trade offline, a demat statement is normally sent to you only on a quarterly basis .keeping
track of your portfolio can be a hassle in such a case. The inter net can provide a new sense of
control over your financial future. The amount of investment information available online is truly
astounding. Its one of the best aspect of being a wired investor for the first time in history, any
individual with an internet connection can:

• Know the price of any stock at any time

• Review the price history of any stock in chart format
• Follow market events in-depth
• Receive a wealth of free commentary and analysis about stock markets and globe
economy.
• Conduct extensive financial research on any company
• Talk with other investors around the world

At investsmart you can get real-time stock quotes, daily roundups of the stock market, experts
commentary, and a deep community of fellow investors.

Convenience is probably the greatest advantage online trading offers investors. if don’t have time
to trade during market hours ,perhaps you are at work, you can log on the web-trading site and
place your order offline, during off market hours. Your order would join the queue and be
expected the next day. You would need to enjoy a good relationship with your broker, for you to
 31

be able to reach him in the late hours. For non-resident Indians (NRI), trading online is perhaps
their easiest option to invest in the Indian stock markets.

What is more, the time difference, in some cases, can work to their advantage .Antony, an NRI-
based in New York, places his order in the evening after work, when it is day time India and the
markets are open. We also have access to considerable information online. By just logging on to
ICICI direct online, for instance, we can get the latest news, market information and company
research.

Moreover, if our connection is maddeningly slow and we want to get your order executed
immediately, most e-brokerages also provide a facility to trade offline by placing our order via
the phone.

PROCESS OF ONLINE TRADING

An investor interesting in trading through Internet shall have to, firstly register himself with an
Internet brokerage firm. Some formalities such as filling the account opening form of the e-
broker, copies of identity proof, copy of residence proof are made to register himself with the e-
trader. Secondly, the investor would be required to open a bank account with a scheduled bank
and sufficient balance should be kept in the account. Thirdly he would be required to open
account with a depository participant because only dematerialized shares can be traded on
Internet.
 32

The client places order via the net by logging on to his

Broker’s site.

The broker accepts and executes the order and

places it with the exchange

The exchange accepts the order after checking the share

limit for the day.

The broker makes the payment either directly via the client
bank account or pays through its own account and recovers
it later from the client.

The exchange receives money and completes the

settlement.

The client is intimated about the settlement

either through the demat or via e-mail.

So, generally following steps are followed while doing the trading through the Internet:

Step-I:

Those investors interested in doing the trading over Internet system, that is,NEAT - ISX (NSE),
should approach the brokers and register with the Stock Broker.

Step-2:

After registration, the broker will provide to them a login name, password and a personal
identification number (PIN).

Step-3:
 33

Actual placement of an order, Using the place order window as under can then place an order:

(a) First by entering the symbol and series of stock and other parameters such as quantity and
price of the scrip on the place order window.

(b) Second, fill in the symbol, series and the default quantity.

Step-4:

It is the process of review. Thus, the investor has to review the order placed by clicking the
review option. He may also re-set to clear the values.

Step-5:

After the review has been satisfactory; the order has to be sent by clicking on the send option.

Step-6:

The investor will receive an "Order Confirmation" 'message along with the order number and the
value of the order.

Step- 7:

In case the order is rejected by the Broker or the Stock Exchange for certain reasons such as
invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a
time lag of about ten seconds is there in executing the trade.

Step-8:

It is regarding charging payment, for which there are different modes. Some brokers will take
some advance payment from the, investors and will fix their trading limits. When the trade is
executed, the broker will ask the investor for transfer of funds by the investor to his account.

THE MECHANICS OF ONLINE TRADING

 34

CLIENT BROKER STOCK EXCHANGE

Accepts the Accepts the order

Places an order on order, Checks after checking the
the net on the the client’s scrip limit of the
broker’s website Identity and broker for the day
through the places the
distinctive I.D. order with the
code stock Executes the
exchange order
The settlement of
the deal (buy/sell
order) gets
reflected in his
Demat account.
Pays the

Exchange
The client is
though his
intimated about Receives the
owns account
the execution of money and
and receives it
the deal by e-mail. completes the
from the client
Pays the broker settlement
account.
pending physical
delivery.
Rolling Settlement Cycle :

In a rolling settlement, each trading day is considered as a trading period and trades executed
during the day are settled based on the net obligations for the day. At NSE and BSE, trades in
rolling settlement are settled on a T+2 basis i.e. on the 2nd working day. For arriving at the
settlement day all intervening holidays, which include bank holidays, NSE/BSE holidays,
Saturdays and Sundays are excluded. Typically trades taking place on Monday are settled on
Wednesday, Tuesday's trades settled on Thursday and so on.

Concept Of Buying Limit

 35

Suppose you have sold some shares on NSE and are trying to figure out that if you can use the
money to buy shares on NSE in a different settlement cycle or say on BSE. To simplify things
for ICICI Direct customers, we have introduced the concept of Buying Limit (BL). Buying Limit
simply tells the customer what is his limit for a given settlement for the desired exchange.
Assume that you have enrolled for a ICICI Direct account, which requires 100% of the money
required to fund the purchase, be available. Suppose you have Rs 1,00,000 in your Bank A/C and
you set aside Rs 50,000 for which you would like to make some purchase. Your Buying Limit is
Rs 50,000. Assume that you sell shares worth Rs 1,00,000 on the NSE on Monday. The BL
therefore for the NSE at that point of time goes upto Rs 1,50,000. This means you can buy shares
upto Rs 1,50,000 on NSE or BSE. If you buy shares worth Rs 75,000 on Tuesday on NSE your
BL will naturally reduce to Rs75,000. Hence your BL is simply the amount set aside by you
from your bank account and the amount realized from the sale of any shares you have made less
any purchases you have made. Your BL of Rs 50,000, which is the amount set aside by you
from your Bank account for purchase is available for BSE and NSE. As you have made the sale
of shares on NSE for Rs.100000, the BL for NSE & BSE rises to 1,50,000. The amount from
sale of shares in NSE will also be available for purchase on BSE. ICICI Direct

Future Agenda:

Under the existing legal and regulatory framework, SEBI registered brokers can offer trading on
Internet through order is routing systems. However, with the rapid development of the
technology, we have to evolve fisher steps in this direction it is therefore proposed that as the
next step link between the depositories and banks shall be established after the necessary
regulations have been passed. This would reduce the clearing and settlement time and would also
minimize the risk of all the participants involved in the transactions. We have to look forward
towards achieving an ideal scenario where all the services related to securities markets including
marketing of initial public offers on internet, providing investment advisory services to the
clients, broking, clearing and settlement etc., are provided on the Internet by an intermediary. In
a nutshell it can be said that we are moving towards a one-stop service center.
 36

Chapter 3

RESEARCH METHOD

The basic task of research is to generate accurate information for use in decision making.
Research can be defined as the systematic and objective process of gathering, recording and
analyzing data for aid in making business decisions.

There are basically two techniques adopted for obtaining information:

1. Primary Data.

2. Secondary Data.

Primary Data is gathered specifically for the project at hand through personal interviews with the
accounts officers.

Secondary data is previously collected and assembled for some project other than the one at
hand. It is gathered and recorded by someone else prior to current needs of the researcher. It is
less expensive than the primary data.

SECONDARY DATA
Secondary data was collected from Ludhiana Stock Exchange

Scope of study:

The study is limited to Ludhiana Stock Exchange , Firoz Gandhi Market Ludhiana

Data Collection:

Data is collected from secondary sources.

 37

Sources of data collection are:

1) Ludhiana Stock Exchange

2) www.nseindia.com

3) www.bseindia.com

4) www.on-linetrading.com

For the successful research the manipulation of certain things, concepts, and symbols for the
purpose of generalization is inevitable. Research is simply the pursuit of truth with the help of
the study.
Analysis and Interpretation

1. For how long you have been trading with on line-trading?

(a)1 year (b) 2 year

(c) 3 year (d) 4 year

Sample size 100

50

40

30 1year
2year
20 3year
4year
10

0
YEAR
 38

According to this survey we find that 44% people says that we are investing the money
online from one year and 26% people says that we are investing the money online from 2
years and 19% to 11% people says that we are investing money online from 3 to 4 year.
so we can say that now online trading is very popular in the modern market.

2. How will you describe your experience with on-line trading till date?

(a) very easy to operate

(b) very difficult to operate

(c) not secure

(d) Any other

Sample size 100

60

50 I find it very easy to operate

40
I find it very difficult to
30 operate

20 I feel it is not secure

10 Any other
0
Experience

According to this survey we find that 60% of people find very easy to operate and 15%
people find diffcuilt two operate and 10% and 15% people find no secure and any other.
so we can say that online trading is very simple to operate and easy to understand.

3. what amount of money you invest normally ?

 39

(a) 50000 (b) 100000 to 150000

(c) 150000 to 2000000 (d) Any other amount

Sample size 100

35
30
25
50000
20
100000to150000
15
150000to200000
10 Any Other
5
0
Money

According to this survey we find that 35% of people invest money normally 50000 and
28% of people invest money 100000to150000 and 23% and 14% of people invest money
between 150000to200000 and any other. So we can say that the people are not invest
more money in the share market because there is a great risk involved while doing the
trading.

4 . How often do you trade?

(a)Daily (b) Weekly

(c) Monthly (d) More than one month

Sample Size 100

 40

40
35
30
25 daily
20 weekly
15 monthly
10 more than 1 month

5
0
Time

According to this survey we find that 10% of people do trade Daily and 40% people
do trade weekly and 32% and 18% people do trade month and more than month. So
we can say that people are generally invest in stock market weekly basis.

5. which trading you prefer?

(a) On line trading (b) Manual trading

(c) Both
 41

SampleSize 100

50

40

30 On line trading
Offline trading
20
Both
10

0
Relationship

According to this survey we find that 20% people prefer online trading and 32%
people prefer offline trading rest of 48% people prefers both. So we can say that
mostly people are awareness about the on line trading and because of this reason the
mostly people are optimizing offline trading.

6. Whether online trading settled in Indian investor psyche

(a) Yes (b) No

 42

Sample Size 100

70
60
50
40 Yes
30 No
20
10
0
Settleled

According to this survey we find that 30% people says yes and 70% people says no. so
we can find that on line trading is not settled in the Indian psyche because some people
are not experience towards online trading.

7. What shortcomings do you feel in Indian On-Line trading ?

(a) Lack of awareness the investors about on-line trading

(b) Shortage of domestic technical expertise

(c) Shortage Of Infra structure

(c) any other

Sample Size 100

 43

50

40 Lack of awareness

30 Shortage of
expertise
20 Shortage Of Infra
structure
10 any other

0
Shortcomings

According to this survey we find that 15% of people says lack of awareness 49% says
Shortage of expertise and 14% people says Shortage Of Infra structure and 22% says any
other. So we can say that mostly people are shortage of experience about the Indian
derivatives market or share market.

8. Which media would you prefer the most for investment?

(a) T.V (b) Newspaper

(c) Magazines (D) Journals

60

50

40 T.V
30 Newspaper
Magazines
20
Journals
10

0
Media
 44

According to this survey we find that 55% people Prefer T.V and 25% people prefer
newspaper and 10% people prefer magazines and 10% people prefer journals. So we can
suggest that mostly people are very easily grapped the knowledge through T.V.

Chapter 4
CONCLUSION

Online trading is the new concept in the stock market. In India, online trading is still at its
infancy stage. Online trading has made it easy to trade in the stock market as now people can
trade while sitting at their home. Now stock market is easily accessible by the people. There are
some problems while doing the trade through the internet. Major problem faced by online trader
is that the investors are loyal to their traditional brokers, they rely upon the suggestions given by
 45

their brokers. Another major problem is that the people don't have full knowledge regarding
online trading. They find it difficult to trade themselves, as a wrong entry made by them, can
bring them huge losses.

Nevertheless to say that online trading has the bright future as the percentage of the trade done
through online trading is increasing day by day.

Chapter 5

References

BIBLIOGRAPHY

BOOKS
• C. R. Kothri, Research Methodology, Vishwa Prakshan
 46

MAGAZINES
• Business World
• LSE’s Magazine

INTERNET SITES
• www.nseindia.com
• www.bseindia.com
• www.on-linetrading.com
• www.sebi.gov.in
• www.lse.co.in