Online Trag

8/10/2019 Online Trag

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CHAPTER 1

INTRODUCTION TO ONLINE TRADING

TRADING

A trading is the process in which someone who buys and sells FINANCIAL

INSTRUMENTS such as STOCKS, BONDS and DERIVATIVES. Traders are

professionals, casual INVESTORS or SPECULATORS in financial instruments traded in

the STOCK MARKETS, DERIVATIVES MARKETSand COMMODITY MARKETS,

comprising the STOCK EXCHANGES, DERIVATIVES EXCHANGES and the

COMMODITIES EXCHANGES.

WHY INVESTOR'S DO TRADING

Investors can deal with stock exchange securities either for a genuine trading purpose or for

the purpose of speculative trading. Genuine investors generally give/take delivery of shares

with no intention to postpone the settlement to the next period. Their primary motive is to get

long term gains. n the other hand, speculators do not take/give delivery of shares. They deal

in differences in the purchase and sale prices. Their main intention is to carry forward the

transactions and get short!term gains due to price differences.
http://en.wikipedia.org/wiki/Financial_instrumentshttp://en.wikipedia.org/wiki/Financial_instrumentshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Speculatorhttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Commodity_marketshttp://en.wikipedia.org/wiki/Commodity_marketshttp://en.wikipedia.org/wiki/Stock_exchangeshttp://en.wikipedia.org/wiki/Stock_exchangeshttp://en.wikipedia.org/wiki/Derivatives_exchangehttp://en.wikipedia.org/wiki/Commodities_exchangeshttp://en.wikipedia.org/wiki/Financial_instrumentshttp://en.wikipedia.org/wiki/Financial_instrumentshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Derivative_(finance)http://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Speculatorhttp://en.wikipedia.org/wiki/Stock_marketshttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Commodity_marketshttp://en.wikipedia.org/wiki/Stock_exchangeshttp://en.wikipedia.org/wiki/Derivatives_exchangehttp://en.wikipedia.org/wiki/Commodities_exchanges


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millions of people in -$A. &ot of #1I5s i know play in -$ stock market even when they come

to "akistan for holidays via website of e$chwabe.

There are other serious players like %;trade, 3+++ and you can buy and sell stock using these funds. They also

issue you a check book which you can use to make payments from this account. r use their

AT? card to withdraw cash from your stock trading account.

Today practically every big name brokerage firm offers #!&I#% stock trading as it

reduces their costs. %arlier they had army of brokers on phone with clients executing trade,

which is done by computers accepting orders from clients directly. This firm now offers

human access to high net worth accounts, and to rest at charge per trade.

OBJECTIVES OF INTERNET TRADING:

Increase transparency in the markets.

%nhance market uality through improved liuidity, by increasing uote continuity and

market depth.

1educe settlement risks due to open trades, by elimination of mismatches.

"rovide management information system (?I$).

Introduce flexibility in system, to handle growing volumes easily and to support

nationwide expansion of market activity.

'esides, through Internet trading three fundamental ob4ectives of securities regulation can

be easily achieved, these are@ Investor protection, creation of a fair and efficient market

and, reduction of the systematic risks.

NEED FOR THE STUDY

"akistann capital markets are the oldest capital markets in Asia acuired roots in the year

*7+ itself. "akistann government granted approval to 'ombay stock exchange ('$%) in the

year *237 under the provisions of securities contract regulatory A0T *237. %ver since such

approval is granted to euity trading in "akistann market has been acuiring new dimension


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from time to time to promote euity trading. The sophisticated technology and statutory

provisions governing euity trading lead to many changes in "akistann market. Therefore it is

strongly felt necessary that a through scrutiny and assessment of trading pattern is

indispensable. After the review of literature it is also felt necessary to understand the changes

that were incorporated from time to time in euity segment and their impact on trading

patterns.

%very trading pattern and its respective influence on volume of trading have both

positive and negative side. 8or instance banning of 'A


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hen a business makes a profit, it can share that money with its stockholders by issuing

a *%.%*$*. A business can also save its profit or re!invest it by making improvements to the

business or hiring new people. $tocks that issue freuent dividends are %#&$ st#,s.

$tocks in companies that re!invest their profits are +"(t0 st#,s.

'rokers buy and sell stocks through an exchange, charging a commission to do so. A broker

is simply a person who is licensed to trade stocks through the exchange. A broker can be on

the trading floor or can make trades by phone or electronically.

An exchange is like a warehouse in which people buy and sell stocks. A person or computermust match each buy order to a sell order, and vice versa. $ome exchanges work like auctions

on an actual trading floor, and others match buyers to sellers electronically. $ome examples

of ma4or stock exchanges are@

THE NEW YORK STOCK EXCHANGE, which trades stocks auction style on a

trading floor

THE NASDA3, an electronic stock exchange

THE TOKYO STOCK EXCHANGE4 A JAPANESE STOCK EXCHANGE
http://www.nyse.com/http://www.nasdaq.com/http://www.tse.or.jp/english/http://www.nyse.com/http://www.nasdaq.com/http://www.tse.or.jp/english/


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orldwide $tock %xchangeshas a list of ma4or exchanges. O.$"5t0$5#!t$" 6OTC7stocks

are not listed on a ma4or exchange, and you can look up information on them at the T0

'ulletin 'oardor "ink$heets.

hen you buy and sell stocks online, you5re using an )%$ 2",$"that largely takes the

place of a human broker. Fou still use real money, but instead of talking to someone about

investments, you decide which stocks to buy and sell, and you reuest your trades yourself.

$ome online brokerages offer advice from live brokers and broker!assisted trades as part of

their service.

If you need a broker to help you with your trades, you5ll need to choose a firm that offers that

service. e5ll look at other ualities to look for in an online brokerage next.

CHOOSING A BROKER

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?-0 ?#%F F- "&A# T I#H%$T.?ost firms reuire investors to

have a certain amount of money to open an account. This is different from a minimum

account balance !! although most brokerages have those, too.

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ANY OTHER SERVICES YOU MAY WANT9 A /$( t"a*%+ s%t$s )$t 8! 2!8 a*

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brokerage track and report your investments according to tax regulations and the "AT1IT

Act.

In addition to providing this information, you must make several choices when you create an

account. ith most brokerages, you can chose between individual and 4oint accounts, 4ust

like at a bank. Fou can also open custodial accounts for your children or retirement accounts,

which are often tax!deferred. -nless you pay a penalty, you can usually retrieve earnings

from a retirement account only when you retire.

#ext, you must choose between a cash account and a margin account. Fou can think of a cash

account as a straightforward checking account. If you want to buy something using your

checking account, you have to have enough money in the account to pay for it. -sing a cash

account, you have to have enough money to pay for the stock you want.

A margin account, on the other hand, is more like a loan or a line of credit. In addition to the

actual cash in the account, you can borrow money from the brokerage based on the euity of

the stock you already own, using that stock as collateral. Then, you can buy additional stock.

Four margin is the euity you build in your account.

According to the 8ederal 1eserve 'oard, you must have at least 3+ percent of the price of thestock you wish to purchase in your account. In other words, if you want to purchase >3,+++

worth of stock, the value of the cash and stock in your account must be at least >D,3++. Fou

can borrow the other >D,3++ from the brokerage.


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nce you have made your purchase, you must keep enough euity in your account, also

called your euity percentage, to cover at least D3 percent of the securities you have

purchased. ere5s how the brokerage determines this number@

The market value of your stock minus the amount of the loan you took to buy thestock is yourE3UITY AMOUNT.

Four euity amount divided by your total account value is yourE3UITY

PERCENTAGE.

If your euity percentage falls below the minimum, the broker has the right to issue an euity

call. Typically, the brokerage will try to contact you, but the firm has the right to sell any and

all of your assets to raise your euity percentage to the minimum. The brokerage is not

obligated to contact you.

?argin accounts are definitely more complex than cash accounts, and buying on credit

presents additional financial risks. If all of that sounds overwhelming, it5s a good idea to stick

with a cash account. If you5d like some more examples of how margin accounts work, check

out the I105sInvesting $imulator 0enter.

8inally, you must decide how the brokerage will store your money between trades. ?any

brokerages offer interest!bearing accounts, so you continue to earn money even when you are

not trading.

nce you have made all these choices, you must fund your account. Fou can make a deposit

by check, make a wire transfer to the brokerage or transfer holdings from another brokerage.

hen your account is open, you5re ready to trade. e5ll look at the trading process next.

'-&& H$. '%A1

?arket analysts use the words 6bull6 and 6bear6 (or 6bullish6 and 6bearish6) to describe

whether the market is generally rising or falling. If you have trouble remembering which is

which, 4ust think of the way the two animals attack. 'ulls toss their horns upward, and bears

swipe downward with their claws.
http://www.investingonline.org/isc/index.htmlhttp://www.investingonline.org/isc/index.htmlhttp://www.investingonline.org/isc/index.html


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Ma,%+ T"a*$s

nce you5ve opened and funded your account, you can buy and sell stocks. 'ut before you do

that, you want to get a real!time stock uote to confirm the current price of the stock. Four

brokerage may provide real!time uotes as part of your service. ?any free financial news

sites offer delayed uotes, which are at least twenty minutes behind the market. If the market

is moving uickly, a delayed uote can be substantially different from the real trading price.

nce you5ve gotten your uote and decided you want to make a trade, you can choose to

place a market order or a limit order. A market order executes at the current market price of

the stock. A limit order, however, executes at or better than a price you specify. If the price

doesn5t reach the limit you set, your trade will not go through.

$ome brokerages offer additional options, often used to prevent high losses when a stock

price is falling. These include@

STOP ORDER ! A form of market order, this executes after the price falls through a

point that you set. The order executes at market price, not at the stop point.

STOP LIMIT ORDER ! These are like stop orders, but they execute at a price you

set rather than market price. In rapidly moving markets, the broker may not be able to execute

your order at your set price, meaning that the stock you own may continue to fall in value.

TRAILING STOP ORDER ! &ike a stop order, a trailing stop executes when the

price falls through a point you set. owever, its selling price is moving instead of fixed. Fou

set a parameter in points or as a percentage, and the sale executes when the price falls by that

amount. If the price increases, though, the parameter moves upward with it. $o, if a stock is

trading at >D+ per share, and you set a trailing stop order with a three!point parameter, your

initial selling price would be >*K per share. 'ut if the price then increases to >D3 per share,

your new selling price would be >DD per share.

Fou must also select whether your order stays active until the end of the day, until a specific

date or until you cancel it. $ome brokerages allow you to place 6all or none6 or 6fill or kill6

orders, which prevent a partial rather than complete exchange of the stocks you want to trade.

0ontrary to many people5s perceptions, making trades online is not instantaneous, even if

you5re placing a market order. It can take time to find a buyer or seller and to electronically


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process the trade. Also, even though you can access your account and place buy and sell

orders twenty!four hours a day, your trades execute only when the markets are open. An

exception is if your firm allows after!hours trading, which is riskier due to the reduced

number of trades taking place.

O)%$ St#, F"a!*

ith erratic prices, corporate scandals and 6market corrections,6 you may think you already

have enough to worry about when it comes to trading stocks. 'ut there is one more important

worry to add to the pile !! investment fraud.

&ong before the days of online trading, a few unscrupulous brokers defrauded investors or

absconded with their money. 8raudulent firms known as boiler rooms have also employed

brokers to make unsolicited phone calls to investors, selling bogus or overvalued stock.

"eople must evaluate their broker5s ethics and 4udgment, and part of the broker5s 4ob is to

protect investors from fraudulent stocks.

ith online trading, though, people must research stocks on their own, deciding what to buy

and sell without the help of a broker or an investment planner. 8raudsters have takenadvantage of this, leading to several notable methods of defrauding investors. These include@

PUMP5AND5DUMP SCHEMES ! "eople spread the word about a 6sure thing6 stock

via online message boards, online stock newsletters, email and other methods. The resulting

interest in the stock drives up the price. The organiBers of the scheme sell their stocks for a

huge profit, and then stop promoting it. The price plummets, and investors lose money.

FRAUDULENT IPOS ! $ome investors like I"s because they provide a chance to

6get in on the ground floor6 and to make a substantial profit. $ome scammers, though, spread

the word about an upcoming I" for companies that never intend to go public or that don5t

exist. Then, they abscond with investor5 money.

FRAUDULENT OTC STOCKS ! 0on artists promote stock in companies that do

not exist or start a pump!and!dump scheme for an T0 stock. After investors buy stock in

non!existent companies, scammers simply take the money and run.


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FRAUDULENT COMPANY INFORMATION ! "ublicly traded companies have to

release information about financial performance. verstating or misrepresenting a company5s

goals and achievements can drive up the stock price.

8ortunately, you can protect yourself from most of this by doing your own research. In

addition to researching your brokerage, you should research any company you plan to invest

in, including reading annual reports and financial statements. Fou should also check the

$%05s %lectronic


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stockbroker. nline brokerage firms charge flat rates for each transaction, which are usually

extremely inexpensive by comparison.

The second benefit of online stock trading is that you have full control. This was always one

of the biggest complaints when brokers held a stranglehold on the market. They would often

refuse to perform a trade they thought was a poor investment. If they saw any flaws in an

investment, they had full authority to deny the trade to their clients. hile this could save the

potential client from making a bad investment, it could also prevent them from taking a risk

that would pay off enormously. nline stock trading removes the middleman between traders

and the stocks they want.

The third benefit of online stock trading is immediacy. -sing the daisy chain of investor tobroker to trade to payoff was sometimes too time consuming to execute the trade in time,

which is a danger in the world of stocks where time is money and seconds count. Trading

online allows immediate trading for the investor and real!time updates regarding a stock9s

performance. The lag between the investor5s purchase and the actual time the stocks are

bought has been reduced to nil.

The fourth benefit of online stock trading is being able to make as many or as few trades as

you desire. 'rokers usually reuired a minimum trade allotment, which meant that an

individual could not make a single trade for a paltry sum. They were forced to adhere to the

broker9s guidelines. This prevented casual traders from being able to trade whatever volume

of investments they wanted.

The stock market has come a long way from the archaic days of faceless men in pinstripe

suits making deals in boardrooms that toyed with the finances of the entire country, if not the

world. #ow it is 4ust as easy for anyone to trade online while sitting in the comfort of his orher own home. The benefit of online stock trading is that it wrests control of the market from

the brokers and puts it, along with his or her financial future, into the hands of the individual.

?any customers, who have chosen to trade shares online today , had at one

"oint of time been trading through offline brokers .After realiBing the advantages of

trading shares online, they have switched over to online trading now .owever,before

choosing an online trading site ,all the sites should be compared in order to form a

decision.


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nline trading has made it possible for anyone to have easy and efficient access

to more reports and charts than it was previously possible if one when to brokers

office .Thus, we have access to a lot more information online to self teachourselves.

It eliminates the risk of bad deliveries, which in turn eliminates all costs and

wastage of time associated with follow up for rectification.

This reduction in risk associated with bad delivery has lead to reduction in

'rokerage to the extent of +.3 by uite a few brokerage firms.

$creen!based trading facilitates the investor to keep a track of the transaction from the

source to the end .e can punch in the orders and see the results at the bottom of the

screen .Thus, one can get instant trade confirmation.

nline trading has left room for smaller organiBations to compete with

?ultinational organiBations ,since is no longer a legit issue. 'eing online does not

identify the siBe of any particular organiBation.

nline trading has allowed companies to locate themselves were they want, as

physical location is not an issue anymore. 0ompanies can establish themselves

according to their gains and losses, for instance, where tax(sales and value!added

taxes) is best suited to them.

nline trading gives control to individuals and they can exercise it over their

accounts thus comprehend what is going on the trade. It is like going back to school

and re!educating oneself on how to trade online.

Individuals benefit by saving comparatively a lot more when trading online as the cost

per trade is less.


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Individuals can invest in a variety of products, unlike earlier when people bought

bonds, mutual funds, and stocks for long!term basis. #ow they can invest in stocks,

and index options, mutual funds, individuals, government,

0orporate, municipal bonds, various types of I1A account ,mortgages and even

insurance.

nline trading has it possible for one to find investment options that were not

available on a regular basis, like off!beat net stocks ,eccentric uniue things and

trading in global market.

Internet has brought the market at the desktop of an investor and he does not

have to take the pain of going the stock exchange or to his broker9s office .e

can also do away with the need of calling up his broker freuently only to enuire

about the prices of various scripts, Internet trading connects the stock exchanges

directly of the investor ,who should make sure that the online trading site ,he selects

provides him the trading screen ,which uses the Mpush technologyN to display prices .

-sing the push technology the trading

screen display the real time prices of *+ to *3 script s at a glance ,unlike pull

technology where in one needs to type the uote every time one needs the price.

Internet has made it possible for broking firms to transmit key market

Information to all clients at one go. ?arket watch screen gives live tick update on

the desktop ,where by the investor can set a number of scripts of his choice, which

will keep ticking through streaming uotes without manual intervention .

0lients find it easier and convenient to interact with their broker in a web!enable

environment. In the past there were instances of brokers misleading the information

given to them by their clients , because of communication lags. This led in effect

ruined several investors. The internet ensures speedy and correct flow of information

between all users.


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nline trading sites provide professional advice to investors . ?any investors are not

knowledgeable about the stock markets and need advice about their investment

decisions.

$ome of them (investors)also need some hand!holding especially when the market

are falling and enmeshed in rocky times .The investor can also send

e!mail with his ueries and can expect a timely response .

?any people derive a substantial portion of their income from trading in the stock

markets . 8or an experienced trader internet broking can prove to be a

Mland of plenty N.'esides information research and professional advice, online trading

can also offer technical advice that can help all who engaged in trading.

In the past there are instances that small investors encountered a situation .

hen he desperately wanted to place an order, but his brokers line were

constantly engaged . hen he finally managed to get through his broker , hecould not

get the best price .nline trading can eliminate his problem . All he has to do is log

on to the site and place the order.

Also , on the internet a customer can trade from his home or from any other place,

it is convenient for him . Thus brokers who would not otherwise entertain

outstation clients.

8or example , Geo4it $ecurities, which does *+ of its business through the net, has a

lot of non!resident "akistani from Gulf as its clients and nearly 3+ of the internet

volume comes from the #1I clients.

%ven when the market is closed , an online investor can make his trade .


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Although, his trades will not be executed at that time but atleast he can act

immediately. ?any times his next morning not permit him to go to the brokers

office or even phone him for placing the order .Then there are always the hassles ofcalling up the broker a couple of times for confirmation .1ather , he can now place

his order the previous evening ,knowing that it will through automatically

first thing in the morning.

nline trading also helps in portfolio management .An investor can control

the whole process, from research to order entry, at his own convenienc.e can

track performance of the portfolio, as to how it is faring vis!O!vis market. If it

is not performing well, he can also get advice on restructuring it.

ther services that one gets by trading shares online@

The Internet has indeed revolutioniBed investing. Access to financial planning tools that

previously were accessible only to the rich are now available online to everyone and the good

thing isPit9s for freeQ Investors can now learn about stocks (and other financial instruments,

too) and more importantly, now have better opportunities to invest and be more engaged with

their investments because of the internet.

In the stock market, gone are the days when the only option for stock investing is through a

broker!agent (who does the transaction for you, provide recommendations and the likes) in

order for you to trade stocks. Although the services of a broker!agent is still very much

available and relevantR but because of the internet, anyone willing to invest in stocks can now

opt for a M


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And in the "hilippines, there are several stock brokerage houses that offer online trading.

These are those firms who9ve got the resources to subscribe to third!party trading system

providers, and better still, those who have the capabilities and expertise to create, develop and

manage their own trading platforms for the "hilippine market.

These online trading systems and platforms enable anyone wanting to invest in stocks to get a

feel of online trading through the M8ree TrialN account offersR as well as online registration for

a trading accountR even up to real!time funding of investmentsR all these with 4ust a few clicks

of the mouse and without leaving the comforts of their homes and offices.

As soon as the online account is activated upon submission of reuirements, which could be

considered as very minimal (D valid I


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Fou also get real!time, live!stream and up!to!date news, data and account information that

you need, whenever you need them, to make the best trading decisions.

Fou can even get to choose whatever device you prefer to do your trading transactions withP

either laptop, tablet or mobile phone and other internet!capable devices. ith online trading

you can trade any wayQ

. 8reedom and %mpowerment. Technology is a crucial element than widens one9s choices of

investments, as well as a potent tool on how to grow investments. And online stock trading

offers the latest and robust technology that gives both the freedom and empowerment any

investor is looking for. $ince online stock trading is


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nline trading is not always instantaneous . In a rapidly changing market, orders

may not get executed at the price on the computer screen .This is because even a

nano seconds delay can put one out of the race for that particular stock at that

particular price.


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CHAPTER ?

ONLINE TRADING SAFETY

These days the vast ma4ority of stock trades take place online. There are still however some

people who prefer not to trade this way. -sually this is because they are afraid that online

trading is not safe. In general this is not an issue.

nline trading is generally considered to be safe and in a lot of ways is safer than using a live

broker. nline trading sites use the same kind of encryption technology that online banks use,

that is *D bit encryption. There is no way that anybody is going to hack through that. As

long as you stick to a reputable broker you should have no trouble in this regard. The highly

encrypted websites are a much safer way to trade than doing it by phone like you would if

you had a live broker.

The other reason that online trading is safer

than going to through a live broker is that all of the trade information is right in front of you.

hen you call a broker you give him your instructions verbally which he then passes on to

somebody else verbally. This creates opportunities for errors to occur and they do freuently.

hen you are trading online all of the information is right there on the screen in front of you

so you will know exactly what you are trading. This greatly reduces mistakes and makes sure

that you get the trades that you intended to make.

hile online trading is safe you do still have to make sure that you follow the basic safetyrules of being online. This would include things like making sure that you choose a good


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password and that you don5t use the same one that you use on all of your other accounts. Fou

also want to make sure that you keep your password safe and that you log out after each

trading session. Also be careful of suspicious email. This is stuff that you should do for all of

your online accounts, but is especially important for your brokerage account because of the

amount of money involved.

hile online trading is generally safe in the sense that you are not likely to have your money

stolen, there is of course still the risk that comes with stock trading. $tocks go down in price

all the time and this means that you can lose money. In fact ONLINE TRADINGmay have

made this problem worse. "eople know have so much information and get can stock prices at

any time, they can also trade on a seconds notice. This tends to lead to people 4umping from

one stock to another which usually ends up costing them money. 1eally the greatest danger to

online trading is a lack of trading discipline. This is something that you are going to have to

learn for yourself.

T%s t Sta8 Sa/$ W0$ T"a*%+ O)%$

The world of online stock tradingcan be a land of opportunity. It can also be a nest of vipers.

If you are considering $T"a*%+business securities, bonds or mutual funds, you first need to

be aware of how to make your experience completely safe. #umerous predators and identity

thieves can turn a simple eTrading account into a gateway to ruin your life and your financial

future. To stay safe online, there are a few basic steps that you need to follow.

K$$ At%5.%"!s a* At%5s8(a"$ S/t(a"$ A#t%.$

This step is sound advice any time you are online. aving security software in place can

protect you from having your computer infected with malware that could absorb your

financial information and then broadcast it. 'efore you input any personal data into a

computer, perform a full scan and make sure your anti!virus and anti!spyware software is up

to date.

R$s$a"#0 Y!" $T"a*%+ P".%*$"

ne of the most common scams on the internet is fake eTrading websites. These are devised

by criminals who simply want to gain your account information uickly so they can empty

your bank account. These sites make promises of extremely low trading prices, guaranteed
http://www.wharton.upenn.edu/learning/online-trading-and-investment-simulator.cfmhttp://online-stock-trading-review.toptenreviews.com/http://www.wharton.upenn.edu/learning/online-trading-and-investment-simulator.cfmhttp://online-stock-trading-review.toptenreviews.com/


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returns or any other kind of bait that might be appealing. 'efore you give any information to

a company, do a little research into the company5s background.

The easiest way to find out if an eTrading business is legitimate is to check with the -nited

$tates $ecurities and %xchange 0ommission. It uses a system known as %


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C0s$ a R$!ta2)$ C&a8

ptionsJpress,ptionsouseandTrade=ingare few of the best eTrading companies

around. They have strong histories of security and dedication to their clients. Their fees are

reasonable and their features are unbeatable. If you are looking to start investing, use one of

these companies. Cust make sure to type its name into your browser5s address bar to avoid

pretenders.

nline stock trading can be a fun and lucrative way to pay for your retirement, a vacation or

4ust make a little extra money on the side. It can also be a haBardous place for anyone who

does not take the appropriate steps. $o, keep your anti!virus and anti!spyware software up to

date. 0heck out the company through %


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CHAPTER @

ONLINE TRADING DERIVATIVES

It"*!#t% :

In our present day economy, finance is defined as the provision of money at the time

when it is reuired. %very enterprise, whether big, medium or small, needs finance to carry

on its operations and to achieve its targets in factR finance is so indispensable today that it isrightly said that it is the lifeblood of an enterprise.

The term Uownership securities9 also known as Ucapital stock Urepresents shares. $hares

are the most universal forms of raising long!term funds from the market. %very company,

except a company limited by guarantee, has a statutory right to issued shares.

The capital of a company is divided into a number of eual parts known as shares.

According to 8arewell .4, a share is, Mthe interest of a shareholder in the company, measured

by a sum of money, for the purpose of liability in the first place, and if interest in the second,

but also consisting a series of mutual covenants entered into by all the shareholders interest9.

$ection D(7) of the companies act, *237 defines it as M a share in the share capital of a

company, and includes stock except where a distinction between stock and shares expressed

or implied.

$hare market is of two types. They are cash marketand derivative market.

0ash markets are the secondary markets where trading in existing securities is done.

&isting of new issues for investment and disinvestments by savers/investors takes place. It

imparts liuidity or encash ability to stocks and shares. $tock exchange is a market in which

securities are bought and sold and it is an essential component of a developed capital markets.


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The securities contracts (1egulation) Act, *237, defines $tock %xchange as

follows@ MIt is an association, organiBation or body of individuals, whether incorporated "

not, established for the purpose of assisting, regulating and controlling of business in buying,

selling and dealing in securitiesN.

A stock exchange, thus imparts marketability and liuidity to securities,

encourage investments in securities and assists corporate growth. $tock exchanges are

organiBed and regulated markets for various securities issued by corporate sector and other

institutions.


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hedgers, speculators, and arbitrageurs trade in the derivatives market. edgers face risk

associated with the price of an asset. They use futures or options markets to reduce or

eliminate this risk. $peculators wish to bet on future movements in the price of an asset.

8utures and options contracts can give them an extra leverageR that is, they can increase both

the potential gains and potential losses in a speculative venture. Arbitrageurs and in business

to take advantage of a discrepancy between prices in two different markets. If, for example,

they see the futures price of an asset getting out of line with the cash price, they will take

offsetting positions in the two markets to lock in a profit.


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0hairmanship of


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A derivative is an instrument whose value is derived from the value of one or more

underlying which can either in the form of commodities, precious meat, currencies, bonds,

stock and stock indicesN. As the price of the wheat derivatives would be determined or based

on the prices of wheat itself.

Given the fast change and growth in the scenario of the economic and financial sector have

brought a much broader impact on derivatives instrument. As the name signifies, the value of

this product is derived of based on the prices of currencies, interest rate (i.e. bonds), share and

share indices, commodities, etc. #ot going into very back, financial derivatives 4ust came

into existence in the early *2+9s. ere the principal instruments, clubbed under the general

term derivatives, include

*. 8utures : 8orwards

D. ptions,

S. $waps

. arrants

3. %xotic and are the modern tools of financial risk management.

All pricing of derivatives is done by arbitrage, and by arbitrage alone. ere, there is a

relationship between the price of the spot and the price in the futures. If this relationship is

violate, then an arbitrage opportunity is available, and we people exploit this opportunity, the

price reverts back to its economic value. Therefore, arbitrage is the basic reuirement for

pricing. The role of liuidity i.e. the low transaction costs is in making arbitrage check up

and convenient.


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8utures. A future contract is an agreement between two parties to buy

r sell an asset at a certain time in the future at a certain price. 8uture contracts are

$pecial types of forward contracts means that the former are standardiBed exchange

Traded contracts.

ptions.ptions are of two types,

Calls option. 0alls give the buyer the right but not the obligation to buy a

Given uantity of the underlying asset, at a given price on or before a given future


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CHAPTER

DATA ANALYSIS AND SURVEY

*. Are you aware of online tradingE

Pa"t%#!)a"s Y$s N

I.$st"s "$ss$ ? @

/ t0$ sa&)$ 1

I#T%1"1%TATI#@

F"& t0$ a2.$ +"a0 ($ #a sa8 t0at / t0$ $)$ a"$ a(a"$ / )%$ t"a*%+

a* 1 / t0$& a"$ t a(a"$ / %t9

D.


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response

yes

63%

no

37% yes

no

I#T%1"1%TATI#@

F"& t0$ a2.$ +"a0 ($ #a sa8 t0at @ $)$ a#t%.$)8 a"t%#%at$ % s0a"$ &a",$t

a* @ / * t a"t%#%at$9

S. hich online investor category you belong toE

Pa"t%#!)a"s U#$"ta%

$(#&$"

M*$"at$

a#t%.$ t"a*$"

A#t%.$ *a8

t"a*$"

Ha*s % $.$"8

t

I.$st"s "$ss$ 1

/ t0$ sa&)$ @@ ? ? 1@


35/43

category

uncertain

newcomer

33%

moderate

active

trader

27%

active day

trader

27%

hands in

every pot

13%

uncertainnewcomer

moderate activetrader

active day trader

hands in every pot

INTERPRETATION:

The above graph depicts that SS of them are uncertain newcomer, DK of them belong tomoderate active trader category and active day trader and *S of them belongs to hand inevery pot category.

.


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I#T%1"1%TATI#@

F"& t0$ a2.$ +"a0 ($ #a sa8 t0at / t0$ %.$st"s 0a.$ D$&at a##!t a*

@@ / t0$&

*$st 0a.$ D$&at a##!t9

3. Are you in favour of


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response

Rate of

return

!%

"i#uidity

3%

$onvinienc

e

7%

Reu&ation

1!%

Rate of return

"i#uidity

$onvinience

Reu&ation

I#T%1"1%TATI#@

8rom the above graph we can say that &iuidity(S) is most preferable among all the

attributes.

K. Are you aware the nature of risk involved in online tradingE

Pa"t%#!)a"s Y$s N

I.$st"s "$ss$ ?

/ t0$ sa&)$ @ 1


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response

'3%

17%

yes

no

I#T%1"1%TATI#@

8rom the above graph we can say that (S)ma4ority of the people are aware of risk involvedin online trading.

9


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F"& t0$ a2.$ +"a0 ($ #a sa8 t0at / t0$ %.$st"s #0$#, 2",$"s a#t%.%t%$s

a* * t #0$#,9

*+.


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convinience

2!%

'!%

outcry

screen +ased

INTERPRETATION:

8rom the above graph we can say that + of the people are in favour of screen based

trading and D+ of them in favour of outcry system.

#T%@ I t0$ a2.$ aa)8s%s t0$ sa&)$ s%>$ %s @ %9$ N@ 9

FINDINGS

8rom the above analysis we have come to this conclusion that most of the people are awareof online trading and very much interested in screen based trading.

. After this study we can come to this conclusion as below i.e

2+ of investors are aware of online trading.

7S.S of investors participate in share market .

SS.S of investors are willing to go for option (A),D7.K of investors are willing

to go for option ('): (0) and *S.S of investors are willing for option (


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where (A)uncertain newcomer(') moderate active trader (0)active day trader(


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CHAPTER

RECCOMMENDATION - CONCLUSION

CONCLUSION

nline trading is the new concept in the stock market. In "akistan, online trading is still at its

infancy stage. nline trading has made it easy to trade in the stock market as now people can

trade while sitting at their home. #ow stock market is easily accessible by the people. There

are some problems while doing the trade through the internet. ?a4or 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 ma4or problem is that the people don5t 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. #evertheless to say that online trading has the bright

future as the percentage of the trade done through online trading is increasing day by day.

RECOMMENDATIONS

The suggestion to exchange authorities is to take steps to educate investors about their rights

and obligation , try to increase investors confidence. I suggest the exchange authorities to be

vigilant to curb wide fluctuations of prices on the exchanges in the prices ,not attracting to

the genuine investors to the greater extents towards the market .Try to explain them how

fraud will take place so that they will be alert and they can take necessary steps to avoid the

frauds.

Genuine investors are not at all interested in the speculative gain as their investment is based

on the future profits , therefore the authorities of exchange should be more vigilant in

imposing heavy

margin to curb the speculative of securities.


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REFERENCES

,meritrade Education $enter http-..www/ameritrade/com.inde01/htm&

nvestoruide/com- ntroduction to nvestin%

(asics/http-..www/investor%uide/com.i%up1introductiontoinvestin%+asics/htm

nvestoruide/com- nvestment $hoices http-..www/investor%uide/com.i%up1

investmentchoices/htm

"aise4 E&eanor and 5i&&iam aud&in/ 8oo) the Ri%ht (ro)er/

Smartoney/com4 ,u%ust 14 2!!*/ http-..www/smartmoney/com.+ro)ers.inde0/cfm9

story:2!!*intro

N,S,,- et the ;acts ,+out On&ine nvestin%

http-..moneycentra&/msn/com.content.nvestin%.Startinvestin%.- 5?!!*'76

nternet ;raud- 8ow to ,void nternet nvestment Scams/

SE$/http-..www/sec/%ov.investor.pu+s.cy+erfraud/htm

5eston4 "iB

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