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“ONLINE TRADING”

Bachelor Of Commerce

(Banking & Insurance)

Semester (V)

(2015 – 2016)

Submitted

In Partial Fulfillment Of The Requirements

For The Award Of Degree Of Bachelor Of

Commerce - Banking & Insurance

By

PRATHMESH SUHAS DALVI

Seat No. 1149669

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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.

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Capital market Segment:-

Primary & 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 :-

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

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Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or list on the Stock Exchange. Majority of the trading is done in the secondary market.

INDIAN CAPITAL MARKET AT GLANCE

21 st 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 Senses touches all time high 6954 in January

2006 BSE Senses 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 Sense saw its highest ever loss of 1,408 points at the end of the session.

2008 Sexes’ saw its 15 month low, from its all time high

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2009 Sexes’ saw its down trend & highest ever loss because of Satyam case.

BRIEF ABOUT THE STOCK EXCHANGE:-

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

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in stock markets is driven by various factors which, as in all free markets, affect the price of stocks (see stock valuation).

CONCEPT OF SHARE TRADING ;-

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.

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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.

5. It facilitates take over’s 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.

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On Line Trading 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 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

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their finances and save more money in the process. Unfortunately, this is not always the case.

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.

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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 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.

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DIFFERENCE BETWEEN ONLINE AND OFFLINEDIFFERENCE BETWEEN ONLINE AND OFFLINE TRADING :-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.

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.

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Points of difference between online trading and offline 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.

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DEMATERIALISATION OF SHARES

Dematerialization is the process wherein 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 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.

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.

Investor purchases securities in any of the stock exchanges linked to depository through a broker.

Broker receives payment from investor and arranges payment to clearing corporation.

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Broker receives credit to securities in clearing account on the payout day.Broker gives instructions to DP to debit clearing account .

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 number of securities sold by him and credit the brokers clearing account. The procedure for selling dematerialized securities is given below:

Investor sells securities in any of the stock exchange linked to depository through a broker.

Investor instructs his DP to debit his demat account with the number of securities sold and credit the broker’s clearing account.

Before the pay-in-day, broker of the investor transfers the securities to clearing corporation.

The broker receives payment from the stock exchange.

The investor receives payment from the broker for sale of securities in the same manner as received in case of sale of physical securities.

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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.

Market timings:

Trading on the derivatives segment takes place on all days of the week (except Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings of the derivatives segment are:

Normal Market / Exercise Market Open time : 09:55 hoursNormal market close : 15:30 hoursSet up cut of time for Position limit/Collateral value : till 15:30 hrsTrade modification end time / Exercise Market : 16:15 hours

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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 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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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;

1.Offer market information and investment tools similar to those offered by information vendor or SRO web sites;

2.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;

3.Provide market summaries and commentaries, analyst reports and trading strategies and market data on currencies, mutual funds, options, market indices and news; and

4.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.

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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. 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

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Investment Advisory Services:-

Brokers as well as other service provides such as investment firms, research outfits etc. are using the Internet for marketing and advertising purposes, for presenting information on portfolio analysis and market information, and for communicating with and receiving orders from potential investors. The services offered by the service providers to the investors are generally the following:

Advertising

Providing investment information and investment advice

Underwriting

Communicating with the investors;

Customer orders; and

Record keeping

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Working Groups set up by the Committee :-

Considering the present state of capital markets in India and keeping in view the ongoing developments in Internet based securities business, it was felt that SEBI as a regulator could strive to identify areas where use of Internet in the capital market is possible within the existing legal framework. One such area identified by the Committee, which is also the central within the existing legal framework. One such area identified by the Committee, which is also the central theme of this report, is the area of Internet trading on existing electronic exchange. In this area, through early introduction of Cyber Laws would be highly describe but their existence is not a necessary precondition. To look into the existing regulatory scenario and to bring out some ground rules for use of the medium of Internet, the Committee therefore constituted the following two working groups to look into the area of:

A. Security protocols and standardization of interfaces for Interest based securities trading, chaired by Prof. Deepak B. Phatak, IIT, Pawai, Mumbai.

B. Surveillance and monitoring related issues arising due to Interest based securities trading, chaired by Shri. L.K. Singhvi, Sr. ED, SEBI.

The committee also requested Ms D N Raval, Executive Director, SEBI to examine the legality of introduction of Internet trading and issue of Alternative trading systems. This report of the standing committee examines the regulatory and security requirements Internet Based Trading on Conventional Exchanges. Separate reports (s) will cover the other areas related to Internet applications in the securities markets.

The report of the first working group on security protocols and standardization of interfaces has since been submitted and incorporated in the report. The committee would like to place on record its sincere thanks to Dr. D.B. Phatak, Ms. D.N. Raval and their team members.

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Recommendations of the Committee:

Application for Permission by Brokers

SEBI registered Stock Brokers interested in providing Internet based trading services will be required to apply to the respective stock exchange for a formal permission. The stock exchange should grant approval or reject the application as the case may be, and communicate its decisions to the number within 30 calendar days of the date of completed application submitted to the exchange. The stock exchange, before giving permission to brokers to start Internet based services shall ensure the fulfillment of the following minimum conditions.

Net worth Requirement

The broker must have a minimum net worth of Rs. 50 lacs if the broker is providing the Internet based facility on his own. However, if some brokers collectively approach a service provider for providing the interest trading facility, net worth, criteria as stipulated by the stock exchange will apply. The net worth will be computed as per the SEBI circular no FITTC/DC/CIR-1/98 dated June 16, 1998.

Operational and System Requirements:

Operational Integrity:

The stock Exchange must ensure that the system used by the broker has provision for security, reliability and confidentiality of data through use of encryption technology. This stock exchange must also ensure that records encryption technology. The stock Exchange must also ensure the records maintained in electronic from by the broker are not susceptible to manipulation.

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System Capacity

The stock Exchange must ensure that the brokers maintain adequate backup systems and data storage capacity. The stock Exchange must also ensure that the workers have adequate system capacity for handling data transfer, and arranged for alternative means of communications in case of Internet link failure.

Qualified Personnel:

The stock Exchange must lay down the minimum qualification fro personnel to ensure that the broker has suitably qualified and adequate personnel to handle communication including instructions as well as other back office work which is likely to increase because of higher volumes.

Written Procedures:

Stock Exchange must develop uniform written procedures to handle contingency situations and for review of incoming and outgoing electronic correspondence.

Signature Verification/ Authentication:

It is desirable that participants use authentication technologies. For this purpose is should be mandatory for participants to use certification agencies as and when notified by Government/SEBI. They should also clearly specify when manual signatures would be required.

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Client Broker Relationship 1. Know Your Client:

The stock Exchange must ensure that brokers have sufficient, verifiable information about clients, which would facilitate risk evaluation of clients.

2. Broker - Client Agreement:

Brokers must enter into an agreement with clients spelling out all obligations and rights. This agreement should also inter alia, the minimum service standards to be maintained by the broker for such service specified by SEBI/Exchange for the internet based trading from time to time. Exchange will prepare a model agreement for this purpose. The broker agreement with clients should not have any clause that is less stringent/contrary to the conditions stipulated is the model agreement.

3. Investor Information:

The broker web site providing the internet based trading facility should contain information meant for investor protection such as rules and regulations affecting client broker relationship arbitration rules, investor protection rules etc. The broker web site providing the Internet based trading facility should also provide and display prominently, hyper link to the web site/page on the web site of the relevant stock exchange (s) displaying rules/ regulations/ circulars. Ticker/quote/order book displayed on the web-site of the broker should display the time stamp as well as source of such information against the given information.

4. Order /Trade Confirmation:

Order/Trade confirmation should also be sent to the investor through email at client’s discretion at the time specified by the client in addition to the other made of display of such confirmation of real time basis on the broker web site. The investor should be allowed to specify the time interval on the web site itself within which he would like to receive this information through email.

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5. Handling Complaints by Investors:

Exchanges should monitor complaints from investors regarding service provided by brokers to ensure a minimum level of service. Exchange should have separate cell specifically to handle Internet trading related complaints. It is desirable that exchanges should also have facility for on-line registration of complaints on their web site.

6. Risk Management:

Exchanges must ensure that brokers have a system-based control on the trading limits of clients, and exposures taken by clients. Brokers must set pre-defined limits on the exposure and turnover of each client. The broker systems should be capable of assessing the risk of the client as soon as the order comes in. The client should be informed of acceptance/rejection of the order within a reasonable period. In case system based control rejects an order because of client having exceeded limits etc., the broker system may have a review and release facility to allow the order to pass through.

7. Contract Notes:

Contract notes must be issued to clients as per existing regulations, within 24 hours of the trade execution.

8. Cross Trades:

As a matter of abundant precaution, the committee seeks to reiterate that as III the case of existing system, brokers using Internet based systems for routing client orders will also not be allowed to cross trades of their clients with each other. All orders must be offered to the market for matching.

It is emphasized that in addition to the requirements mentioned above, all existing obligations of the broker as per current regulation will continue without changes. Exchanges may also like to specify more stringent standards as they may deem fit for allowing Internet based trading facilities to their brokers.

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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:

Freedom Of Information:

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:

A. Know the price of any stock at any time B. Review the price history of any stock in chart format C. Follow market events in-depth D. Receive a wealth of free commentary and analysis about stock markets and

the global economy E. Conduct extensive financial research on any company

Control On Your Money:

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.

Access To The Market:

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.

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Ensures The Best Price For Investors:

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.

Transparency:

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.

Enables Hassel Free Trading:

Online trading integrates your bank account, your trading account and your demat accounts, which leads to easy and paperless trading for you.

Allows Instant Trade Execution:

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.

Provide a Playing Level Field:

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.

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Reduce The Settlement Risk:

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.

Instant Order Trade Confirmation:

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.

Integrated Accounts:

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

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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.

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5.) Unparalleled Liquidity:

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.

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PROBLEMS OF ONLINE BROKING:-

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

21%

23%

27%

11%

14%

4%

More Costly

Lack Of Knowledge

Loyalty to Traditional Broker

Lack of Trust

Slow Speed

Other

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":

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.

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2.) Connectivity of the Broker with NSE:

Recently ICICI Direct had a connectivity problem with the NSE for two and half-hours 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.

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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 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.

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.

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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. 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:

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A. Know the price of any stock at any timeB. Review the price history of any stock in chart formatC. Follow market events in-depthD. Receive a wealth of free commentary and analysis about stock markets and

globe economy.E. Conduct extensive financial research on any companyF. Talk with other investors around the worldG. 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 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.

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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 him 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.

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.

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

Step-1:

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:

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.

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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.

CLIENT BROKER STOCK EXCHANGE

Places an order on the net on the broker’s website through the distinctive I.D. codeAccepts the order, Checks the client’s Identity and places the order with the stock exchange Accepts the order after checking the scrip limit of the broker for the day

Executes the order

The settlement of the deal (buy/sell order) gets reflected in his Demat account.

The client is intimated about the execution of the deal by e-mail. Pays the broker pending physical delivery.Pays the Exchange

though his owns account and receives it from the client account.

Receives the money and completes the settlement

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THE MECHANICS OF ONLINE TRADING

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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 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.

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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.

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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

YEAR05

1015202530354045

1 year

2 year

3 year

4 year

According to this survey I 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.

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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

Experience0

10

20

30

40

50

60

I find it very easy to operate

I find it very difficult to operate

I feel it is not secure

Any other

According to this survey I find that 60% of people find very easy to operate and 15% people find difficult 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.

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3. What amount of money you invest normally?

(a) 50000 (b) 100000 to 150000

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

Sample size 100

According to this survey I 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 investing more money in the share market because there is a great risk involved while doing the trading.

Money0

5

10

15

20

25

30

35

50000100000to150000

150000to200000Any Other

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4. How often do you trade?

(a)Daily (b) Weekly

(c) Monthly (d) More than one month

Sample Size 100

Time0

5

10

15

20

25

30

35

40

dailyweeklymonthlymore than 1 month

According to this survey I 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.

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5. which trading you prefer?

(a) On line trading (b) Manual trading

(c) Both

Sample Size 100

Rela-tionship

05

101520253035404550

On line tradingOffline tradingBoth

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.

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6. Whether online trading settled in Indian investor psyche

(a) Yes (b) No

Sample Size 100

Settleled0

10

20

30

40

50

60

70

YesNoSe-ries3

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.

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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

Short-comings

05

101520253035404550

Lack of awareness

Shortage of expertise

Shortage Of Infra structure

any other

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.

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

(a) T.V (b) Newspaper

(c) Magazines (d) Journals

Media0

10

20

30

40

50

60

T.VNewspaperMagazinesJournals

According to this survey I 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.

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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 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.

LIMITATIONS

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1. Despite of the training my level best, there were still some limitation which I think remains there to draw fruitful conclusion. There were some practical problem which come across and could not be properly death with

2. The advisory services being promised by the brokers would be of little use to investors looking for an insight into the market.

3. As a client one will access the NSE through a server of the online brokerage and this may involve queuing delays

Suggestions

The introduction of the Internet has surprisingly changed our way of life as a society. It has defined the way we do business and the way we correspond. The Internet has opened many opportunities for online trading. The financial industry revolves around the Internet. Every thing is just a few clicks away. This makes online trading most convenient. But there are still investors who prefer the old fashion way of offline trading and they mainly prefer offline trading for security reasons.

Of course, online trading has many pros. There are several wonderful reasons to invest online and consider online trading.

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1. Money saving opportunities The amount of money you save depends primarily on the online brokerage firm that you choose. No two firms are the same. There may be different regulations, similar to bank regulations. There are minimum deposits required that must be maintained. As mentioned above, this will depend on the online brokerage firm.

2. Instant online access You can gain instant access to your account, the value of your portfolio updates immediately before your eyes.

3. Enter online trades at anytime You can enter online trades at anytime and from anywhere. This is very convenient if you live in a different time zone than the country you are trading in. Not to mention, it is especially fit for investors with busy schedules.

4. With online trading you are in charge You are in control of your investments. No sales pitches and no hassle. You decide where to invest your money.

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BIBLIOGRAPHY

BOOKS

C. R. Kothri, Research Methodology, Vishwa Prakshan

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