Many people who want to participate in the stock market either as investors or traders have this question – “Should I do online stock trading or is it better to have a broker?” This is an erroneous question. You need a broker even if do online stock trading. The question actually should be- “Which is better – Online stock trading or Offline trading”?
Till around 10 years ago, the only way to trade stocks was offline. Purchase and sale of shares took place in the trading ring in the stock exchange by means of ‘shouting’ the prices. We have gone a long way since then and today a stock trader would fine this system archaic.
The Introduction of Online Stock Trading Changed The Entire Stock Trading Scene.
- A person could trade from the comfort of his home.
- Trades got executed in seconds.
- Chances of broker errors reduced.
- The number of people participating in the stock market increased bringing in liquidity.
With Improvement in Technology, Online Stock Trading Offers A Plenty of Advantages Over Trading Offline:
- While one can communicate with the broker’s office only during office hours, a trader can access his online stock trading terminal to view his day’s trades, his profit or loss and also his share holdings at any time and on any day.
- All procedures in online trading are systematic and organized since the processes are automated. In case of trading offline with the broker however, there are chances of human error. Take the simple case of placing an order. Say you have placed an order by phone for purchasing 500 shares of Company X at Rs. 200 with a dealer in the broker’s office. Either due to hearing wrong or by oversight he may buy only 50 shares. If the price of that stock shoots up immediately, you will lose the opportunity to buy the stock.
- The exposure offered in online stock trading is limited in comparison to offline trading. This results in more disciplined trading. In case of offline trading, the broker can easily offer higher exposure to a client which may result in overtrading and loss.
- Trader terminals are equipped with facilities to draw up technical charts. A trader with fair knowledge of technical can easily do technical trading based on these charts and graphs.
- Some brokers even have accounting software incorporated in the trading software itself and all the trades and the resulting profit or loss will automatically reflect there. The trader need not waste time, effort and money on accounting.
- Many online brokers offer their clients facilities to trade, even if they are not in front of a computer terminal. Orders can be placed on the phone and some even provide the facility for calling toll free. However an offline client does not get the opportunity to trade online.
Many Traders and Investors Prefer Offline Trading:
- They visit the broker’s office and place their trades there. This is done especially by old and retired investors as they get to trade as well as interact with other traders discussing stock markets, price movements, and potential of particular scrip and so on.
- Some others especially people who are occupied with their jobs and businesses, place orders to purchase or sell shares with the broker on the phone. The broker informs the client when the trade gets executed and also gives a confirmation of all trades at the end of the day.
The main plus point of trading offline with the broker is the personal touch. Online trading is very impersonal and it hardly needs any personal interaction.
So in spite of the marvelous developments in online stock trading, there are many who prefer the traditional way of placing orders directly with the broker.