Article on

A Study on usage of Information Technology in Stock Market

: An analysis of its Pros & Cons

Author: 1

Author: 2

Dr. Giridhar K.V.

Mr. Krishna M.M.

Assistant Professor,

Faculty Member,

Department of MBA,

Department of MBA,

Sahyadri Arts & Commerce College,

Sahyadri Arts & Commerce College,

Kuvempu University,

Kuvempu University

Shimoga-577203.

Shimoga-577203.

: giridhar.malnad@gmail.com

: krishna.gurukrupa636@gmail.com

: 9980647833

: 9611473965

: 08182-240022

: 08128-401758

Office Address:
Sahyadri Arts & Commerce College
(Constituent college of Kuvempu University),
Vidhyanagar, Shimoga-577203.
Karnataka State

Article on

A Study on usage of Information Technology in Stock Market

: An analysis of its Pros & Cons
Introduction:
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, 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 the account is the actual investor. Further more, the
internet investor can never become a victim of excessive trading (where for the broker) since the
investor maintains total control over the number of transactions which take place in the account.
All of these positive features of internet trading may lead the unwary investor to believe that
Internet trading is a way to take control of their finances and save more money in the process.
Unfortunately, this is not always the case. The advantages of Internet stock trading have also its
weaknesses and these weaknesses present significant drawbacks for the average investor.
First and foremost, the average investor is not an expert in the financial markets. There is a
danger for allowing the autonomy of online trading to hull you into the belief that you are an
expert investor. An online investor sitting at home at a personal computer also foregoes proper

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

Statement of the problem:

In online share trading, there is the possibility that internet connection may get slow or get
stopped. This may result in disconnection from share market. If computer stops functioning, then
this may also result in disconnection from share market. At such crucial times one has to call his
executive (where the trading a/c is opened) and place the order or square off the pending orders.
Hence, authors are so curious to study inspite of the above said problems along with power-cut
and other technical problems, how on-line trading is happening and what are its pros and cons.

Objectives of the study:

The objective of the study goes thus,
To know about the usage of information technology in stock market
To know why people are bending towards On-line Trading
To know about the benefits & drawbacks of On-line Trading

Methodology:
There are basically two techniques adopted for obtaining information: Primary data and
secondary data. Primary data is collected in the form of direct interview with the customers and
dealers through non-probability cluster sampling method. Secondary data is collected through
various sources like books, magazines, journals, newspapers, websites etc.

Literature of review:
As the literature of the different authors of books and articles revile the different views on trading Online.
Some of the major books and articles are cited here. In 2007, Nidhi Walia and Ravinder Kumars
research report examined the investors preference for traditional trading and online trading,
investors perception on Online trading and comparing current usage of online trading and
offline trading. This study reveals that out of every 100 investors only 28 trade online, which
points out a question as why investors were not able to realize the importance of technology in
stock trading. The major findings of the study are the Indian investors are more conservative,
they do not change brokers for trading, whereas net traders are more comfortable with online
trading for its transparency and complete control of the terminal.

Tony Turner in his book A Beginners Guide To Day Trading Online published by Adams Media
& FW Publication Company in the year 2000; have streamlined the ways & tips for investors to begin
their trading practices using information technology as an instrument. B V Raghunandan a well renowned
professor has expressed his views in a book called Intricacies Financial Management which was
published in the year 2008 August, covers about the stock market instruments available for traders and the
traditional ways followed by the traders to purchase the shares. S.S. Grewal, Navjot Grewal in his book
Profitable Investment In Shares published by Vision Books in the year 1995; has given an outline on
NEAT & BOLT. V K Bhalla, in his Security Analysis & Portfolio Management published by

Sulthan Chand; has covered the advent of Online Trading. Dr. S Guruswamy, in his book Financial
Market & Institutions published by Thomson publishers has expressed the views on the
problems of online trading.

Background of the Study

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.

Internet has introduced a way for consumers to manage their money online. Not to mention,
Internet has transformed the way investment companies operate their business and has made it
easy for private investors to gain straight access to a range of different markets and online tools
that were at one point only reserved by the use of investment professionals. Consumer investing
and online trading has dramatically changed over the last decade. Online trading dynamically
continues to be redefined. Services have expanded to include integrated management of
additional financial accounts. Not to mention, it has subsequently expanded in conjunction with
ground-breaking improvements to the traditional trading interface, such as telephone interface
systems. When it comes to the trading with the stock market instruments that means, investing on stocks,
we have two type of trading. Those are,

Open outcry system (offline trading)

Screen based trading (offline trading)
Internet trading[online trading]

Under the open outcry system, trader need to be on the floor where trading happens. Usually in
stock exchanges where traders, means buyer have to bid their price and seller have to offer his
shares and finally closes with a mutually agreed prices. When it comes to screen based trading
the trading, the trading happens through computer screen and here distant participants can trade
with each other through the computer by having the internet connections. Screen based trading
system enhances the efficiency of the market. Speed of the transactions, establishes transparency
in the transactions and documentations. Till 1994, trading on the stock market in India was based
on the open outcry system and trading was not dematerialized at that time. But after establishing
national stock exchange and SEBI, in 1994 the screen based system entered to India and in a
short span of time India could able establish the transparency like no other countries did like that
till now.

Internet trading or online trading was introduced in the year 2000. Currently, ICICI Web trade,
Sherekhan, kotakstreet, geogit securities, invest smart, and others are offering the internet
trading. To do internet trading, investor has to register himself as a client with the internet stock
broker apart from having a computer, a modem, and a telephone connection. Investor has to keep
a minimum balance with his bank account with the stock broker so that broker can directly debit
or credit.

An Overview of Online trading

Trading is defined as buying and selling shares in stock exchanges. There are two types of
trading i.e. online trading (via internet) and offline trading (via broker or call).
Gone are the days when the investor must have a stock broker to deal in stocks and make
investments. In this age of internet, when everything is going online, stock trading has also gone
online. Just like the offline stock trading investor can now buy or sell stocks online with just a
few clicks of the mouse. There are obliviously some advantages and some disadvantages of both
these form of trading.

Typically online trading requires the investors to pay lower brokerage. In case of online trading
there is no middle man involved. In case of online trading there is no paper work involved.
Investors can deal with different stock exchanges with single online trading account. In online
terminal, investors cant set customized expert advice, whereas in offline the broker gives
suggestions according to investors strategy (i.e. Short term or Long term) Privacy is less due to
lacking scandals.

Offline trading:
Internet doesn't really change everything but it definitely changes the way we work. We all learn
from the old-style businesses that we have done in the past such as offline trading. Trading done
through share broker is called offline share trading method.

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.

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

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

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.

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.

It is the most trusted and the oldest form of stock trading. With an efficient and trusted broker,
investor can effortless manage the portfolio without spending any time for that. Some of the
drawbacks of offline trading are: often times the brokers takes time to execute investors
instructions of buying or selling the stocks that might incur losses. Offline trading brokerage is
always higher than that of online brokerage.

Products and services on the online trading India

The major financial products and services of the online trading India are like equities, mutual
fund, life insurance, general insurance, loans, share trading, commodities trading, portfolio
management and financial planning.

Online trading: Indian scenario

In the Indian context, online trading can be rightly called as a recent phenomenon, which took
with the change of century i.e. April 2000, and even till day online trading is not much popular
among investors for which a list of factors can be blamed. This fact is more clearly from the
information available that while number of stock exchanges in India has grown from 7
exchanges in1946 to total 23 exchanges till 2005. Only 2 stock exchanges are providing online
share trading. Indian stock exchanges have started adopting technology because it provides the
necessary edge and ensure timeliness and satisfaction in customer service.

However mainly 5 companies control 90 5 of the market in internet trading, ICICI direct.com has
around 50% market share, whereas India Bulls hold 26% share, Other dominant players are
Kotak Securities and Share khan. ICICI has been able to gain its dominant presence in Internet
trading because they have strong connectivity of stock trading, demat account, bank account,
etc., ICICI Direct has recorded 6, 75,000 registered customers and has become 19th larger online
broker in US whereas Share khan and 5 paisa are losing their way.

Process of online trading:

An investor interesting in trading through Internet shall have to, first register himself with an
Internet brokerage firm. Some formalities such as filling the account opening form of the ebroker, copies of identity proof, copy of residence proof are made to register himself with the etrader. 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 account
The broker accepts and executes the order and places it with the exchange
The exchange accepts the order after checking the share limit for the day
The broker makes the payment either directly via the client bank account or
pays through its own account and recovers it later from the client
The exchange receives money and completes the settlement
The client is intimated about the settlement either through the demat or via e-mail

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

On-Line Trading in NSE & BSE:

In spite of many private stock houses at present involved in online trading in India, the NSE and
BSE are among the largest exchanges. They handle huge daily trading volumes, supporting large
amounts of date traffic, and possessing a countrywide network. The automated online systems
used for trading by national stock exchanges and Bombay stock exchanges are the NIBIS &
NSES Internet based information systems and NEAT for the national stock exchanges and the
BSE online trading system or BOLT for the Bombay stock exchange.

Major players in online trading brokerage house in India:

ICICI Securities Ltd

SSKI Ltd.

Kotak Securities Ltd

Motilal Oswal Securities Ltd.

India bulls financial services Limited

Religare Securities Ltd.

India Infoline

Geogit Securities

IL & FS investment Limited

HDFC Securities

Impacts of the Online trading system

Following are the impacts of online trading systems. They are as follows;

Reduced cost of transactions: from the automation, many of the works can be done

possibly in a short time so the cost can be decreased.

Better liquidity: electronic systems make it easier to let many companies to trade with

one another, no matter where they are located. This leads to greater liquidity for the security
instruments.

Greater competition: there will be a greater competition when there are many

companies existing in the market to provide the e trading system. So the investor can catch
out better service and he is deserved for that.
Enhanced transparency level- E trading made the markets less opaque and the market has given a
greater transparency in transacting the instruments and other securities. There will be direct
access to the customer for his transactions.

Findings of the study

Following are the major findings of the study which covers the pros and cons of online trading.

"Server not found": This may appear on ones 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.

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.

Cyber-attack: In the event of a malicious attack on the systems of ones 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.

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.

Non- availability of personalized advice: In Online trading, if investor is wanted advice

by CRM on a particular stock in his portfolio, he may not even be able to get that.

Margin: If Internet trading alone is not fast and furious enough; many people are trading
on margin.

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.

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.

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.

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.

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 ones disposal for research and
analysis.

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.

Unparalleled Liquidity: The bank account linked with the trading account invariably
has an ATM free. Most partner banks offer Internet banking as well. This results in ones
money becoming available to him whenever he like from his trading account.

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 ones account the money from the stocks he sold or the stock bought from the
money in his account is in his account only.

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.

Offers greater transparency: Online trading gives greater transparency to the investors
by providing them an audit trail.

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.

Recommendations
Following are the major recommendations of the study which gives few tips for usage of
information technology in stock market.

Money saving opportunities: The amount of money investors save depends primarily on
the online brokerage firm that investors 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.

Instant online access: Investors can gain instant access to their account, the value of
their portfolio updates immediately before their eyes.

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

With online trading you are in charge: Investors will be having control on their
investments. No sales pitches and no hassle. They decide where to invest their money.

Continuous access to the net: With online trading you are in charge: Major problem
which an online investor faces is that sometime when there is heavy rush on any site
hangs or didnt work properly due to this they faces losses. So there must be some

improvements dont in the online trading system so that the investors have continuous
access to the net.

Human interaction with investors: Online stock broker should have to provide such
facilities which involve human interaction with the investors.

Customer care centre: SEBI must have to establish more customer care centre who can
help the investors in solving their problems.

Legal actions: There must be some strict legal actions taken by SEBI against those
brokers who leaks accounts information of his client.

Transparent: Trading system must be more transparent and effective.

Usage of instruments: Safer instruments are to be used for doing online trading so that
the problem of system failure is solved.

Reduction in transaction time: Transaction time in online trading is less as compared to

off line trading but even then this time need to be further reduced.

Suggestions for Investors for Online share trading:

Do not over trade: Do not put all your money in share market.

Do not put all your money in single share or single sector: Put or divide your money in
multiple shares or sectors. This may reduce the risk of heavy loss.

Do not panic or fear: Think twice before making your trade/plan and once done stick to
it, dont panic or fear.

Accept Loss: If you trade in going against you and if you are not sure about your trade
then immediately accept the loss and come out of your trade. It will save you from heavy
loss.

Right opportunity: Don not fall in trade early, wait for right opportunity and then trade.
Its very important. Wait, watch and then trade you will get success.

Everyday is not trading day: Don not force yourself to do trading everyday. Its wrong. If
you are not sure about the market movement for that day then it always wise decision to
be away from market and not to trade.

Keep you greediness away: Most of the people loose in share market due to greediness.
Get satisfied with whatever profit you get and come out of that trade and wait for next
opportunity. Dont wait to take huge for that single trade.

Conclusion:
In conclusion, it is necessary to say that online trading is a perfect opportunity to trade and earn
money, but still it's obvious that online trading is not for everyone. That's why before you start
trading, you should find out more about online trading pros and cons of online trading concepts.
Knowledge is a main key for successful online trading, do not ever identify online trading with
gambling, because the results of such approach can be disastrous. 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.
The onset of online trading changed the traditional value proposition of trading, allowing online
brokers to supply investors with rich interactive information in real time including market
updates, investment research and robust analytics. The result is an integrated trading experience
that combines execution with interactive analysis shown by growth of the online customer
community.

***

Reference:
Books:
1. Tony Turner 2000 A Beginners Guide To Day Trading Online (2nd Edition) Adams
Media & F+W Publication Company
2.B V Raghunandan, August 2008, Intricacies Of Financial Management, S V S
College, Bantwal
3.S.S. Grewal, Navjot Grewal 1995 Profitable Investment In Shares Vision
Books
4.Dr. S Guruswamy, Financial Market & Institution, Thomson publishers
5.K Bhalla, Security Analysis & Portfolio Management Sulthan Chand
Journal:
1.Dr.Giridhar K.Vs article entitled A Study on Online trading Vs Offline trading A
logical comparison published in Financial analyst IUP.
2.Thomson Ps article An analysis of threats to intra-day trading published in
ezinearticles
Websites:
1. http://www.stock-market-investors.com/stock-market-advices-and-tips/online-tradingissues-and-solutions.html
2. http://www.computerworld.com/s/article/53531/Update_Online_trading_problems_caused_
by_upgrade_glitch_at_ADP
3. http://commodities.about.com/od/onlinetrading/a/online_trading.htm
4. http://www.scribd.com/doc/33764921/y-Problems-of-Online-Trading-Project
5. http://ezinearticles.com/?Threats-To-Online-Trading-Companies-From-Fraud-AndHackers&id=542010