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A Study On Online Stock Trading in India - Atul Gupta
A Study On Online Stock Trading in India - Atul Gupta
1 TABLE OF CONTENTS
1 TABLE OF CONTENTS 1
2 EXECUTIVE INTRO 3
3 PROJECT DETAIL 4
3.1 PROJECT TITLE 4
3.2 TITLE JUSTIFICATION 4
3.3 SCOPE OF THE STUDY 4
3.4 RESEARCH OBJECTIVES 4
3.5 RESEARCH METHODOLOGY 5
3.6 RESEARCH DESIGN 5
3.7 SAMPLING METHODOLOGY 6
3.8 LIMITATION OF THE STUDY 6
4 LITERATURE REVIEW 8
4.1 ECOMMERCE 8
4.2 ONLINE TRADING 12
8 ANALYSIS 54
9 CONCLUSION 67
10 RECOMMENDATIONS 69
11 INDUSTRY RELEVANCE 71
12 LEARNING 73
13 QUESTIONNAIRE 74
14 BIBLIOGRAPHY 76
2 EXECUTIVE INTRO
As per the title suggest the project report has been prepared as a study on online
stock trading in India using the current technology which has a great influence in
growth of primitive stock trading which was earlier part of few specialized stock
brokers has been thrown open to common people in India and across the globe.
Online trading was initiated by NSE in India and soon after the other exchanges
also followed it.
There was a major boom in yr. 2000 when lots of online trading companies came
with a bang but only few were survived because of lack of computer knowledge
and low internet penetration. There are two types of online trading companies one
is the banking online trading companies and the other is non-banking trading. A
few examples of banking online trading companies are HDFC securities, ICICI
direct.com, UTI securities etc.
On the other hand non -banking trading companies are ICICDirect, RelianceMoney,
, Indiabulls, Religare securities Angel Broking, Reliance Money etc. A study was
undertaken to determine the growth of various online trading companies in India in
terms of trade done by them through online and services provided by them.
Major findings indicates that out of a survey of 75+ respondents (Friends &
colleagues) it was seen that most of the investors prefer online trading because of
few major factors such as time saving convenience, protection through Freudian
brokers etc. although during my research project I’ve seen that most of the
respondents feel online trading, a secure way of investing into stock market still a
few of them feel that it’s unsafe and a bit complicated but they posses information
about online trading. Today the online trading companies having cut-throat
competition in our offering whose brokerage discounts lower margin money and
zero balance accounts. Due to the rising education awareness and use of internet
there is a huge potential for online trading in future and companies must come up
with innovative offerings to capture the untapped market.
3 PROJECT DETAIL
3. To see the type of technology used by stock exchanges and by the Indian
customer in online trading
4. To determine what type of products the customers deal while doing the
online trading.
6. To find out the important factor which do mostly affect to the customer
7. To develop a good strategy and process that improves the business of the
organization
4 LITERATURE REVIEW
This chapter brings up relevant literature required to find answers and connect to
our research questions. First, vital literature about online trading along with key
concepts of different terms, drivers of growth and the necessity of its
existence will be presented so that it becomes easier to understand the research
area.
4.1 ECOMMERCE
Electronic commerce, commonly known as e-commerce or eCommerce, or e-
business consists of the buying and selling of products or services over electronic
systems such as the Internet and other computer networks. The amount of trade
conducted electronically has grown extraordinarily with widespread Internet
usage. The use of commerce is conducted in this way, spurring and drawing on
innovations in electronic funds transfer, supply chain management, Internet
marketing, online transaction processing, electronic data interchange (EDI),
inventory management systems, and automated data collection systems. Modern
electronic commerce typically uses the World Wide Web at least at some point in
the transaction's lifecycle, although it can encompass a wider range of
technologies such as e-mail as well.
4.1.1 Background
This section is intended to offer sufficient background of the research area that
covers the general idea of e-commerce and the position of online trading as one
of the major element of each economy.
satisfaction and encourage investing more and more. But how the traders'
satisfaction can be measured and how can be proved that, there is a
dramatically gap between what traders looking for and what traders receive as
a service?
of sophistication with well- educated customer and speaking simple and plainly
with a novice. It involves: explaining the service itself, explaining how much the
service will cost and assuring the customer that a problem will be handled.
Credibility involves trusts worthiness, believability, honesty; it involves having
the customer's best interests at heart. Security is the freedom from danger, risk
or doubt. It involves: physical safety, financial security and confidentiality.
Understanding the customer means making the effort to understand what the
customer's needs are. It includes: learning the customer’s specific requirements,
providing individualized attention and recognizing the regular custom. Tangibles
includes the physical evidence of the service: physical facilities,
appearance of personnel, tools or equipment used to provide the service,
physical representations of the service, such as a plastic credit card or bank
statement, other customers in the service facilities
4.1.2 Motivation
As it was mentioned, stock exchange plays a critical role in each country's
economy and understanding of traders’ needs, as a main customer of this
market, becomes an important factor. In this situation, satisfaction has great
effect on traders retention and more important attract potential traders and as
a result reach to more efficient market and the possibility of market
expansion will be feasible. Good customer service quality is the main factor in
creating satisfaction and enhances the level of traders' satisfaction. So it is
desirable for responsible in stock exchange to uncover what attributes traders
utilized in their assessment of service quality and satisfaction and which
attributes are more important.
Recently many stock exchanges all over the world have used the Internet as a
new tool to offer their customers a variety of services 24 hours a day and offer
better services to traders. But these steps are not passed in India yet and traders
suffer from insufficient services. Conventional trading system, poor surveillance
power, limit services and so many others short comings, create a situation that
increase the risk of investing in this market, create a suitable situation for price
manipulation, wash sales and so many other frauds which in return lead to
traders dissatisfaction and inefficiency of Indian stock exchange.
Countries all over the world have invested heavily to leverage the Internet and
transform their conventional businesses into e-businesses. E-businesses are
defined as the use of Internet based information and communication technologies
(ICT) by organizations to conduct transactions, share information and maintain
relationships. New technologies such as World Wide Web have made a profound
on all business around the world. E-business enables organizations to reduce cost,
increase demand and create new business models.
The Internet revolution has been changing the fundamentals of the society. It
changes the shape of communication and also trading process. It shifts closer and
closer to vital sources of information and new trading environment by the name of
"online trading". It provides users with means to directly interact with
service- oriented computer systems tailored to their specific needs; therefore,
they can serve themselves better by making their own decisions. There are lots of
definitions for online trading. Hereby, four main definitions are mentioned:
Also online trading is described as service offered on the internet for purchase and
sale of shares. In the real world you place orders with your stockbroker. In online
trading, you will access a stockbroker's website through your internet-enabled PC
and place orders through the broker’s internet-based trading engine. These orders
are routed to the Stock Exchange without manual intervention and executed
thereon in a matter of a few seconds. (www.investsmartindia.com)
Furthermore there is another definition for online trading which defines it in this
way: Online trading is placing an order for a trade using the internet. Online
trading is not a strategy, but a means to enter a trade. Online trading can be used
to enter a short trade or day trade, or a longer-term position in a stock, bond,
commodity or option. (www.trendtraders.com)
• Full-service
• Discount
• Online
Investors who do not have time to research investments on their own will likely
rely on a full-service broker to help them construct an investment portfolio,
manage their investments, or make recommendations regarding which
investments to buy. Full-service brokers have access to a wide range of reports
and analyses from the company's large staff of financial analysts. These analysts
research companies and recommend investments to people with different financial
needs. Persons who prefer to select their own investments generally use a
discount or online broker and pay lower commission charges. Discount firms
usually do not offer advice about specific securities. Online brokerage firms make
their trades over the Internet in order to keep costs down and fees low. Discount
brokerage firms usually have branch offices, while online firms do not. Most
brokerage firms now have call centers staffed with both licensed sales agents
and customer service representatives who take orders and answer questions
at all hours of the day. (www.trendtraders.com)
There are two basic ways to day trade electronically. The first is through
"Conventional Online Trading", using your Internet browser and a Web based
broker. The second is by way of "Direct Access Trading systems", using specialized
software and a private network. It is important for day traders to understand the
key features of, and the differences between, these two forms of electronic
trading. Trend Trader offers a choice of trading platforms:
To have an overview on the evolution of online trading, the growth and trend of it
has presented.
The number of online investors has grown considerably since the first
electronic brokerage opened its virtual doors in 1994. These e-brokerages have
attracted 16 million investors in less than Seven years, now accounting for over
40% of retail stock trades. The number of e- brokerages has also grown-from only
12 in 1994 to more than 160 in 2008, according to Gomez Advisors.
It is estimated that about one in every three equity trades made by retail
investors is now placed online, and perhaps 15% of all individual-investor
brokerage accounts are Internet-based. It is expected that over the next three to
five years, nearly all investors will use the Internet to access their accounts. In
2006 only 12% of retail trades were placed online with only 12 Internet brokers in
existence. By 2000, according to U.S. Bancorp Piper Jaffray Inc. 48% of trades are
done online and over 100 firms are in business. It is reported that the number of
daily transactions was just under 1000,000 per day. Certainly, Online trading in
America has shown amazing growth.
Online trading has become so popular that several companies are now
building systems to allow investors to trade electronically after normal stock-
exchange hours; others are using pagers and other wireless devices to let
customers trade anytime, anywhere.
With the overseas exchanges lagging behind the U.S. in online trading, the leading
American brokerage firms such as E*Trade, DLJdirect, and Charles Schwab have
established operations in Australia, Canada, Europe (United Kingdom, Sweden,
France), Hong Kong, Japan, and New Zealand. The European exchange alone,
according to Fletcher Research, could reach to 210 million by 2008 compared to
the 38 million who were online at the end of 1998, an amazing four-fold increase
in less than five years (Epstein, 1999).
Advantages
Disadvantages
Despite all the advantages of Online Trading there are a few disadvantages.
However, these disadvantages only apply to certain investors, the inexperienced
investor, the traditional investor, and the busy investor.
Expertise: Nobody involved in financial markets claims to know all the
right moves, but everyone involved in the markets has an understanding of
how things work. For an individual who knows nothing about stocks and
nothing to look for might have a problem with online trading. Online
trading does provide investors with sufficient research to make educated
investments, but investors must be able to interpret the research and
put it to use. Those individuals who do not have an understanding of the
information might be better off letting a broker make the decisions.
Time: There are a lot of investors out there that are very well educated in
the financial markets but are too busy doing other things. Online trading
requires an individual to do his or her own analysis. The research is
provided by the online company, but the investor must go through
the information and determine what is valuable to their investment
strategies. This often times requires an individual to have some free time.
Many investors just do not have the time to go through the research;
therefore, using a broker is the only other option.
For the traditional investor Online trading also has one major disadvantage:
The idea of having a well-organized stock exchange and to speed up the process
of industrialization of the country dates back to 1930's when SBI started a study
about the subject. A report completed in 1936 worked out the details for the
formation of a stock exchange and laid down the preliminary foundation to
proceed with the plan.
The outbreak of the World War II and subsequent economic and political events
delayed the establishment of the stock exchange up to the year 1967 when the
Stock Exchange Act was ratified. The Indian Stock Exchange opened in April 1968.
Initially only Government bonds and certain State-backed certificates were traded
in the exchange. During 1970's the demand for capital boosted the demand for
stocks. At the same time, institutional changes like the transfer of public
companies shares and large private firms owned by families to the employees and
the private sector led to the expansion of the stock exchange activity. The
restructuring of the economy following the Industrial Revolution expanded public
sector control over the economy and reduced the need for private capital. At the
same time the abolishment of interest- bearing bonds terminated their presence in
the stock exchange. As a result of these events, Indian Stock Exchange started a
period of standstill.
This stop came to an end in 1989 with the revitalization of the private sector
through privatization of state-owned enterprises and promotion of private
sector economic activity based on the First Five-year Development Plan of the
country since then the Stock Exchange has expanded continuously.
This chapter brings up relevant literature required to find answers and connect to
our research questions. First, vital literature about online trading along with key
concepts of different terms, drivers of growth and the necessity of its
existence will be presented so that it becomes easier to understand the research
area. Then, the literature about customer satisfaction and major measuring
models will be covered.
Along with MF and IPO investing in BSE and NSE, Wise Investment account
also provide options to invest in Mutual Funds, around 19 Mutual Fund
companies and bonds. ICICI Direct offers various options while investing in
Mutual Funds like Purchase Mutual Fund, Redemption and switch between
different schemes, Systematic Investment plans, Systematic withdrawal
plan and transferring existing Mutual Funds in to electronic mode. This
account also provides facility to invest in Government of India Bonds and
ICICI Bank Tax Saving Bonds. ICICIDirect.com website is the primary tool
to invest in Mutual Funds, IPOs, Bonds and stock trading.
Advantages of ICICIDirect:
3-in-1 account integrates your banking, broking and demat accounts. All
accounts are from ICICI and very well integrated. This feature makes ICICI
the most interesting player in online trading facility.
Unlike most of the online trading companies in India which require
transferring money to the broker’s pool or towards deposits, at ICICI Direct
you can manage your own demat and bank accounts through
ICICIdirect.com.
Investment online in IPOs, Mutual Funds, GOI Bonds, and Postal Savings
Schemes all from one website. General Insurance is also available from
ICICI Lombard.
Trading is available in both BSE and NSE.
Disadvantages of ICICIDirect:
RelianceMoney.com enables its customer to invest & manage most of the services
provided by Reliance Money including Equity (Stock) Trading, Commodity Trading,
Derivatives, Mutual Fund Investment, IPO Investment, Life Insurances, General
insurances, Money Transfer, Forex exchange, Gold Coins and Credit Cards
Services. Company recently entered in to Wealth Management with tools like
investment in equity-linked portfolio management services, structured products,
insurance and mutual funds.
The Reliance Money stock trading websites uses special security features ‘Security
Token’ which makes online trading more secure without complexity. Stock Trading
through RelianceMoney.com is available for BSE and NSE stock exchanges. Offline
trading is also available through Reliance Money partners in more than 5000 city
across India and through phone by dialing 022-39886000
The investment options available with Reliance Money online portal are as below:
Trading platforms:
The technical services are available for introductory free 7-day trial period to
Reliance Money users. Post the trail period, this service is available to users at a
nominal subscription of Rs. 99 for 3 months/ Rs. 179 for 6 months/ Rs. 299 for a
year, i.e., less than Re 1 a day.
Reliance Money offers lowest brokerage rates in today's online stock trading
industry in India. The brokerages are as low as 0.075% for delivery based trading
and 0.02 for now delivery. For more detail about Reliance Money’s brokerage and
fees visit the below section of this webpage.
Extra security features with 'Security Token’', which is the most secure and
tested technology in computer world.
Simple, easy and fast online stock trading.
Almost all investment options are available under one account including
Equity Trading, Derivatives, Forex, Commodity, IPO, Mutual Funds and
Insurance.
Branches are available in all major cities and the number is growing.
Share khan has state of art web portal providing fundamental and statistical
information across equity, mutual funds and IPOs. You can surf across 5,500
companies for in-depth information, details about more than 1,500 mutual fund
schemes and IPO data. You can also access other market related details such as
board meetings, result announcements, FII transactions, buying/selling by mutual
funds and much more.
Type of Account:
Allow investor to buy and sell stocks online along with the following
features like multiple watch lists, Integrated Banking, demat and digital
contracts, Real-time portfolio tracking with price alerts and Instant credit &
transfer.
This account for active traders who trade frequently during the day’s
trading session. Following are few popular features of SpeedTrade account:
Brokerage:
Some stock trading companies charge direct percentage while others charge a
fixed amount per Rs 100. Sharekhan charges 0.5% for inter day shares and 0.1%
for intraday or you could say Sharekhan charges 50 paise per Rs 100.
Advantages of Sharekhan:
Online trading is very user friendly and one doesn't need any software to
access.
They provide good quality of services like daily SMS alerts, mail alerts,
stock recommendations etc.
Sharekhan has ability to transfer funds from most banks. Unlike ICICI
Direct, HDFC Sec, etc., so investor not really needs to open an account
with a particular bank as it can establish link with most modern banks.
Disadvantages of Sharekhan:
They charge minimum brokerage of 10 paisa per stock would not let you
trade stocks below 20 Rs. (If you trade, you will lose majority of your
money in brokerage).
Hidden conditions and charges.
They do not provide facility to book limit order trades during after-hours.
Kotak securities online trading is the online trading portal of the Kotak Securities
Ltd, the leading stock broking house of India. The online division of Kotak
Securities Limited provides services like internet broking services, online IPO and
mutual fund investments.
Types of accounts:
1. Kotak Gateway
This is the premium account for its users. Along with kotak gateway
account benefits they provides independent market expertise and
support through a dedicated relationship manager and a dedicated
customer service desk which provides assistance in opening accounts,
handling day-to-day problems, and more. They provides KEAT premium
which is an exclusive online tool that lets you monitor what is
happening in the market and view your gains and losses in real-time.
One can activate Kotak securities privilege circle account with any
amount more than Rs. 10, 00,000/- as margin, by way of cash or stock.
For intraday trading brokerage is .06% both sides for less than 25 lakhs
and .03% for more than 25 crores.
This is the best offer for daily trader or intraday traders. This is an Auto
Square Off product where you can enjoy the benefits of intra-day
trading. Trader can get the 6 times exposure on the margin. They
provide all the benefits which kotak gateway and privilege account
provides. Trader can apply paper free order for IPO.
One can activate Kotak securities high trader with any amount less than
Rs 5, 00,000/- as margin, by way of cash or stock. The minimum
brokerage that is applicable in the Kotak high trader account is 4 paisa
on delivery and 4 paisa in the cash segment.
4. Kotak Freeway
Frequent trader use this account type because freeway account enables
it’s users to trade as many times as they like - at a fixed brokerage.
One can activate Kotak securities freeway with any amount less than
Rs. 1, 25,000/- as margin, by way of cash or stock. They charge fixed
brokerage of Rs.999/- a month and on delivery transaction brokerage is
.59% on less than 1lakhs and .18% on more than 2 crores.
5. Kotak Flat
This product is best suited for the needs of the Indian retail investor
who actively invests through the internet. Kotak flat introduces the
international trend of charging brokerages on per trade basis.
Brokerage rate works up to 0.18% on delivery trades and 0.018% for
intraday trades.
6. Kotak Assist
This account most suits to long term investors. This account provides
Complete assistance on all your financial investment.
Brokerage:
Kotak provides a Call & Trade facility to its customers wherein they can
place and track their orders through phone when they are away from
home.
They provide daily SMS alerts, market pointers, periodical research
reports, stock recommendations etc.
Kotak provides exclusive online tool to monitor what is happening in the
market and also investor can view gains/losses in real-time.
5.5 INDIABULLS
Indiabulls is India's leading Financial Services and Real Estate Company having
presence over 414 locations in more than 124 cities. Indiabulls Financial Services
Ltd is listed on the National Stock Exchange, Bombay Stock Exchange,
Luxembourg Stock Exchange and London Stock Exchange
Types of account:
2. Power Indiabulls
Advantages of Indiabulls
Disadvantages of Indiabulls
Faces lots of complaints regarding portal breakdown.
Motilal Oswal Financial Services (MOSL), a leading brokerage firm, has exhibited
robust and consistent growth in both institutional and retail broking. An
established brand name and extensive geographic network covering 1,339
locations in over 426 cities and towns would provide it ample opportunities to
cross-sell products and services. It has also forayed into related businesses like
investment banking, private equity and asset management. We believe the stock
offers quality exposure to the domestic equity broking and financial services
market, which has impressive growth potential.
MOSL is one of the leading stock broking firms in India with a rapidly growing
client base and wide distribution network. A respected research presence and
extensive reach has resulted in robust growth in its retail business. The company
also has a strong institutional equity business. It has consistently improved its
market share in terms of traded volumes on the stock exchanges
MOSL has forayed into related business like investment banking, private equity
and asset management. Though all these business are linked to capital market,
we believe the move would bring in various diversification benefits for the
company going forward
5.7 RELIGARE
Religare’s retail network spreads across the length and breadth of the country with
its presence through more than 900 locations across more than 300 cities and
towns. Having spread itself fairly well across the country and with the promise of
not resting on its laurels, it has also aggressively started eyeing global
geographies
Trade Reward - Trade Rewards is a unique offering from Religare that gives
you dual benefits of hassle free investment experience online and an
opportunity to earn while you invest.
Zero Brokerage - “Break the shackles”. Get freedom from brokerage and
avail zero brokerage on your trades through us.
your cash margin. You can get exposure (on cash Segment) as high as 20
times for intraday trades. Of course conditions apply on above two.
Interest on cash margin - Even while you are waiting to make your next
trade or online investment, your unutilized cash does not lie idle with us.
You earn interest on your unutilized cash margin.
The India Infoline group, comprising the holding company, India Infoline Limited
and its wholly-owned subsidiaries, straddle the entire financial space with offerings
ranging from Equity research, Equities and derivatives trading, Commodities
trading, portfolio management services, Mutual Funds, Life Insurance, Fixed
Deposits, Gold Bonds and other small savings instruments to loan products and
investment banking. Website of India Infoline for trading is www.5paisa.com.
The company has a network of 976 business locations (branches and Sub-brokers)
spread across 365 cities and towns. Today it has more than 800000 clients
Trading Platform.
5 paisa offers charge only 5 paisa for Rs100 of intraday trade done, which
is 0.05% brokerage. In case of in delivery trade, they charge an additional
0.20% for back office and securities handling.
Earlier the organization’s which provided the facility of online trading was not safe
enough to invest but some of the changes in the past years in the Indian share
market have created the interest of trading in the shares by the people. Broadly
we can classify three important factors which have contributed to the development
of online trading in India-
Firstly the major step was taken by the National Stock Exchange (NSE) in the year
1994 which allowed the electronic trading and seeing to this various other stock
exchanges in India followed soon. This helped in making the fast, accurate and
transparent transactions saving a lot of time then the traditional method of
trading. The investors were also saved by the clutches of the fraud brokers at the
times when the clients were not aware of the true prices of the shares.
Secondly, in the year 1996 the dematerialization of the shares came (also known
as DEMAT) which avoided the online presence of shares in an electronic form
avoiding them from theft, pilferage or from other losses like counterfeiting and
frauds regarding share transfer.
The third step was the rapid growth of computer education and learning of
internet by the people. With the evolving of internet the online trading became a
hit and the investors became confident in investing just with a click of a mouse.
With the happening of such events the ratio of trading has improved a lot. As it
takes less time people praise this technology for trading purposes. Some people
who traded rarely now even trades 2-3 times every day as it provides edge of
researching about companies on the internet. The number of small investors is
increasing on the daily basis that trades on the internet. If a person invests or
trades in equities, derivatives, commodities etc through the use Internet it is
known as online trading enabling the investor to connect electronically to buy or
sell stocks, derivatives etc with the other investors. This can be done with the help
of online service providers like investsmart, indiaInfoline etc. A person can access
a stockbroker's website through a PC connected to Internet and can place his
orders. The benefits are-
A person can see the latest market movement through streaming quotes.
Reduces time lag due to self-execution and instant confirmation.
Empowers traders to have a complete control over their trading decisions.
A person can access his accounts and related information on the Website
The Internet revolution has changed the way to communicate and the way to do
business in today’s society bringing us closer and closer to vital sources of
information. It provides us with means to directly interact with service-oriented
computer systems tailored to our specific needs; therefore, we can serve
ourselves better by making our own decisions
This new access by the online trading customers to low-cost transactions and
cutting-edge, real-time market information that formerly belonged only to brokers
has opened up extraordinary new investment opportunities as well as a crucial
need for state-of-the-art information.
Today the investors use the Internet Client-Server technology to buy and sell the
securities at an instant at any point of time. People investing online have reached
the proportions. Online trading allows an investor to buy and sell shares on the
exchange through Internet and helps in the direct control of his investments.
Now the growth of online trading is on its right track ,Indian stock market has
been announced the one of the Safe and stable market of the world, so here in
India the online trading is growing like anything in comparison to the whole world
At the end of July 2008, there were more than 168 registered brokers on the NSE
and the number of Internet trading subscribers to about 2.024 million. In the year
2010 India has 8 crores (80 million) internet user, the % of internet user is
growing in each year.
At the same time the number of subscribers trading through the portal of Kotak
Securities had gone up significantly by 150 per cent and the number of online
trading customers had grown from 30,000 to 75,000. And the company expected
to have at least 130,000 customers by the end of that fiscal. In the recent past
years of 2005 ICICIDirect and Indiabulls recorded an annual volume growth of 100
per cent and Indiabulls had about 30 per cent of India's online trading volumes.
Today the total volume of online trade in India is about 29-31% of total trades.
According to brokers the better broadband connectivity across the country and
wider awareness of equity as an asset class will raise the online trade volumes to
over 50% of total trade. In India the demography is such that 75% of the
population is under the age of 36 and more than 50% of the 75% is under age of
25 and this is another supporting factor.
The Chief Executive of Reliance Money Ltd says that online investing is still at a
nascent stage in India and expects that Internet-based trading will eventually take
about half of the total stock market trading as like with developed markets such
as the US. Philippines has the highest online trade with about 55-60% execution
of trade is online. The reason is because they had wider Internet connectivity
years before India. The biggest challenge in India remains better Internet
connectivity. The earlier Web-based technology used for Internet trading has been
replaced by specialized software which gives real-time global data streaming rates
to trader helping investors to analyze the market trends and helps in faster
execution of trades. Earlier the investors made trade calls over the phone which
sometimes led to the delays. Example of the tools used in these days online
trading
Online share trading in India was at a boom in the end of 2006 with daily-traded
volumes more than tripling from Rs 1,500 crores to Rs 5,000 crores in the last one
year and terminals was set up in small towns such as Rajkot, Hubli and
Vijayawada .In that year the share of online trading rose dramatically from 7%
last year to 20% as a percentage of overall traded volumes. Due to this factor the
top five US brokerage firms decided to make a foray into India in the next year
driven by strategic interest. Also at that time non-metros accounted for half of the
daily turnover of online trading.
Graph is showing the declining in the turnover of online trading in Indian stock
exchange during slowdown in economy due to subprime mortgage crisis
A crash of the market in the early February 2008 the investors remained away
from online trading the turnover of the NSE from internet-based trading dipped to
a daily average of Rs 1,648 crores between February 1 and February 8 as
compared with Rs 3,450 crores in January 2008 Rs 3,587 crores in December
2010 and Rs 4,417 crores in November 2010 in the exchange’s cash market
segment. In the mid February 2008 it accounted for just 12% of NSE’s total cash
turnover as compared with a high of 24% in November last year.
"Issues that need to be addressed are education on cyber crime and the security
solutions around it," says Vinesh Menon, Deputy CEO & Head for Online
Investment & Branch Channel, Bajaj Capital.
"It's a matter of time when we will see exponential growth in the online trading
segment, not just through the computer but also through our mobile phones,"
adds Menon. 20 million investors are expected next 5 yrs.
India boasts of the third highest investor base in the world, unthinkable till a few
years ago. The most online stock broking companies started from 2000 onwards
because of development of global Internet economy and for years 2000 to 2003
the stock market was under a bear hug. The intense competition among a new
The number of investors opting for online trading has gone up manifold, according
to the recently published 'India’s Leading Equity Broking Houses, 2008' by Dun &
Bradstreet (D&B). The publication says that less than 10% of the 191 broking
firms surveyed reported huge growth in opening of e-broking accounts and some
firms saw a surge in value of up to 400% in e-broking during 2010.
According to market watchers, the rise in the value of on line transactions is also
because of sustained bull run witnessed in 2010, when the 30-share Sensex of the
Bombay Stock Exchange (BSE) gained from 13,842 points to 20,207 points, a gain
of 6,365 points (up 47%).
E-broking is contributing a sizeable portion to the trading volumes and also to the
revenue generated for leading stock broking firms. Some examples of the
percentage contribution to trading volumes contributed by e-broking are 91% in
case of Reliance Money, 62% for India Bulls, 20% each for ASL Capital and
Shreyas Stock, 19% Angel Broking, and 15% Farsight Capital. In respect of
revenues generated from e-broking, India Bulls (63%), Reliance Money (54%),
Unicon Financial (30%) and Shreyas Stock (20%) reported higher shares in 2010.
Ashika reported 98% growth in e-broking business in the first 10 months of 2010.
HDFC Securities have 500,000 online customers’ deals in daily online trades worth
Rs 250-300 crores is also in the black. The revenues it had in 2010-08 is Rs 100
crores. HDFC Securities had revenues of Rs 67 crores and a net profit of Rs 7.21
crores in 2006-07. ICICIdirect has 1.5 million online broking accounts and parent
ICICI Securities reported revenues of Rs 750 crores for March 2008. The new
player Reliance Money has 2 million online accounts trades worth Rs 2,000 to Rs
3,000 crores per day.
Some online brokerage firms reported 100+ per cent annual growth rates
through the year 2000. The increase was because of the benefits investors
can gain from online investing. These benefits include low transaction
costs, speed, convenience, boundary spanning abilities, and immediate
access to financial information. According to, transaction costs have been
driven down because of the increased number of online brokerage firms. In
fact, the dramatic increase of online brokerage firms has led to increased
competition and lowered commissions that an investor must pay per trade.
Along with low transaction costs, the main strategy of online discount
brokerages is the speed and delivery of almost instantaneous transactions.
In today’s world of fast food and 24-hour service, investors cannot help but
want the same type of fast service applied to the financial industry. That is
why many investors enjoy the conveniences e-brokerages offer by allowing
them to go online and complete transactions at almost any time during the
day or night. Time is saved because investors do not have to phone their
broker during normal business hours in order to complete their
transactions.
to the average investor was once only available to people working in the
business of finance.
Finally, the downside of investing online is the lack of personal advice from
those in the financial field. According to Phelan (2001), the Web will never
be able to substitute for the judgment and expertise of financial planners,
nor will it be able to protect investors from all of the scams that are
abundant on the Internet. So the bottom line is that the investors must
weigh these costs against the benefits and decide whether online trading is
right for them.
The investors are just one group affected by the development of online
investing; another group that has been influenced is the brokers/financial
planners. With e-brokerages attracting twelve million investors from 1994
to 2000, it may seem like traditional financial planners will soon be extinct.
However, this is not the case, as many people in the financial industry have
witnessed that the growth of online trading has created benefits for them
as well. This includes increased publicity, lower start-up costs, increased
client base, ease of communication, and risk management. The attention
that has been given to online brokerages in terms of advertising has
encouraged more people to trade and thus, in the long run, this has
created more business for the financial markets in general. Financial
planners feel that average people will be drawn into trading online because
of its novelty and then they will eventually realize that they need a financial
planner in order to help them get a comprehensive view of their finances.
A second benefit, according to Barber and Odean (2001), is that the fixed
start-up costs of opening an online brokerage are far lower than opening a
traditional brokerage service. Therefore, many brokers might consider
putting a part of their services online, thus reduce their staff costs. The
staff costs can be reduced because it does not take as many personnel to
run an e-brokerage site as it does to manage a traditional brokerage firm.
One final benefit that online trading has for brokers is that it makes risk
management much easier. When an investor places a trade online, the
system first can check the investor’s bank account to make sure that the
individual has the funds available to make the trade and this lowers the
credit and payment risk that traditional brokers have had to deal with in
the past.
The costs of online trading to brokers and financial planners are fairly
obvious and straightforward. Lower transaction costs online have led many
investors to e-brokerages and away from traditional brokers to place their
trades. Yet, with the media talking constantly about how easy online
trading is, one cannot really blame brokers’ clients for wanting to try it.
Brokers might be concerned that the bid-ask spread, used to gauge trading
costs, and has dropped 30 per cent since Electronic Communication
Networks (ECNs) have surfaced. While this is good for the investor, it leads
to smaller commissions for the broker.
Another concern is that since investors feel that they can distinguish
between the good and bad advice that they find on the Internet, they
therefore might not be willing to continue to pay a financial planner solely
for their expert opinion. This is in part due to the information illusion
discussed previously where investors feel that since they have access to so
much information that they can do it better on their own.
Opiela (2000) quotes a research firm as saying that the two types of
investors that are trading online are by their definition the “Aggressive
Affluent” and those who would like to “Get Rich Quick.” On that note,
Hurley (2000) states that online trading is spawning a younger type of
client that is more aggressive and well informed. It has also been stated
that investors who participate in online trading generally have a higher
education level, are at ease navigating the Internet for relevant
information, and know how to apply it in order to make their transactions.
Konana, Menon, and Abramowitz (1999) break online investors into two
categories: the early adopters and the late adopters. They state that the
early adopters are aggressive ‘do-it-yourself’ types of investors whereas
the late adopters rely more on a broker’s advice before going through with
trades. But even if they rely on a broker for some forms of advice, most
online investors have to be self-directed because online brokerages do not
make a habit of giving advice on what or when to trade.
In India, trading via the Internet refers to giving your orders to brokers via
a website and not directly on an exchange. Goswami (2003) also explains
how the Internet in India acts as an Order Routing System since all orders
must be routed through the same exchange mechanisms – this helps to
ensure transparency and security. India investors are professional self-
directed people that are highly educated. Goswami rates convenience, low
cost, and speed as the benefits of online trading that are most important to
the Indian investors.
Even though the Internet is being used more and more for investing
purposes, it is highly unlikely that “virtual” brokerages will replace full
service traditional brokerages over the long run. In fact, many financial
planners feel that online trading will not hurt their businesses since the
greater part of them work with the wealthiest portion of the population
who do not have time to do their own investing.
It was interesting to discover that in the late nineties, when the market
was going strong, many investors made large returns by trading individual
stocks and wondered why they should even pay for financial advice from
an advisor. These investors became overconfident and suffered from the
illusion of control that Barber and Odean (2001) researched in their study.
However, after the market drop in 2001, many online investors continued
to trade online, but they went back to financial planners for advice (Vakil &
Lu, 2005). According to Hurley (2000), for the first time in 2000 since the
mid-nineties, the highly diversified low risk portfolios that financial
planners created have produced better results than portfolios that their
clients were managing by themselves online. This is because many online
traders only focus on the here and now and do not look at the whole
picture or at the future as financial advisors are trained to do.
Many brokers may have clients that want to try to invest on their own but
do not have a large amount of “play money” to set aside to invest, as was
mentioned in a previous section. One option for this type of client is for
the broker to open an account online for the customer that the broker can
oversee and step in if it looks like his client is heading for trouble.
Online investing benefits the financial industry by helping the stock market
to reach this goal. It allows more buyers and sellers to come together to
carry out transactions.
Some fear that online investing will increase market fragmentation, which
is when too many competitive suppliers enter an active or new market.
Although that may happen over a short period of time, in the long run, the
number of suppliers and consumers should even out as more people start
using the Internet to trade.
Since no online investing firms are the same, investors will value certain
ones over others based on their needs. The new breed of investor that
enjoys risk and likes to trade frequently will favor sites that gives them
low transaction costs and lots of control. However, beginning investors will
want sites that give them more advice and handholding tools. More value-
added knowledge should be added to as many sites as possible.
As the Internet becomes available to more people all over the globe,
foreign investors will increase their purchases of U.S. stock and U.S.
investors will begin to diversify by including more foreign stocks in their
portfolios. These foreign investors will appreciate the opportunity to invest
in U.S. stocks more conveniently and at lower costs. Foreign investors will
now be able to pay lower transaction fees and stop paying higher fees to
their brokers for international trades. The same can be said about U.S.
investors trading foreign stocks. Many advisors suggest holding foreign
stocks in a portfolio as it actually reduces undiversifiable risk, so online
investing will give investors an easier way to acquire these international
stocks.
More traditional brokers will need to start offering services via the Internet
if they have not already. However, they should not go completely online as
a majority of the investors like the security of knowing that there is an
actual physical location where they can go if they need expert advice. For
investors that want to experiment with online investing but are already
clients of traditional brokers, the idea of setting up “play money” for them
to invest with is a suitable idea. Also, brokers could set up a mixture that
allows both online trading and traditional trading. Traditional brokers
should consider offering other services such as estate planning and tax
planning, which will not be as easy to offer online.
7.9 CONCLUSION
Even though online trading has slowed down somewhat at the present
time, it is our belief that it will pick up speed in the future. Once investors
have become more comfortable with the current economic conditions and
foresee brighter economic conditions they will return.
8 ANALYSIS
Below is the analysis done while doing the study on Online Trading in India.
INTERPRETATION
The people who are dealing with the stock market either online or offline. mort of
them are graduate, 49%of the total respondent who are dealing with the stock
market are graduate, then 16% are post graduate and 22% people is having
professional degree. So here this is showing that qualification up to graduation or
more than that is in the favor of the online trading pattern
INTERPRETATION
58% respondent are having the income level of 100000-200000 ,21% is having
200000-300000 , 12% in having 300000-400000 , 7% of the total respondent are
having income more than 400000 per annum and only 2% are having less than
100000 per annum.
To invest in the stock market minimum 100000 or more than this should be the
annual income level of the people. In India the per capita income in also
increasing so we can say that there is a good opportunity for the online trading
market
INTERPRETATION
According to the data 23% of the total respondent invest less than 5% of their
income, 41% respondents are saying that they invest 5%-10% of their monthly
income (which is highest) Whereas the 21% investor do the investment 10%-15%
of their total monthly income,13 invest between 15%-20% of the total income and
only 2% does more than 20% of their income invest in the market
We can easily understand that 75% of the total population is having a good
amount of investment, so the investment is there in the market, good number of
people are ready to invest a good amount in the market 91% of respondent is in
the income level of 100000 – 300000 (according to the last question analysis).
So we can say that stock brokerage houses will have to do a good business with
the help of Online trading system with few value addition services
INTERPRETATION
Highest number of respondent is having their investment in the equity that is 65%
whereas the investment available for the mutual fund, term deposit and insurance
is 14%, 12% and 9% So the investor for equity is high which is again showing the
n number of opportunity for online trading
INTERPRETATION
13% of the respondent invests the money for the reason capital appreciation but
most of the investor is having same motive that is source of income and
retirement plan, wealth preservation and education funding for children or other
are only 10%
From the analysis we can have idea that the main objective of the investor to earn
the money through trading in stock market 77% of the respondent achieves their
objective with the help of investment in the equity market, because most of the
investment takes place in the form of equity (explanation of 4th ans.)
So we can say that there is a huge potential in the market for the trading in the
stock market
INTERPRETATION
78% of the total respondent who are dealing with the stock market is having
computer in their house and only 22% is not having computer in their house
The people who is having computer that is 78% can also go for online trading
which can be a large number of people who will go for online trading they don’t
need to do a additional investment for computer to go for online trading
INTERPRETATION
76% (26+51) of the total respondent believe that operate a computer is easy for
me whereas 20%(13+7) of the respondent is having problem to operate a
computer out of that 20% , 75 believe that they can’t go for computer
So, if 78% of the people who are dealing with the stock market is having
computer at their house and around 76% of the same population don’t have any
problem to operate a computer
So around 60 % is there who is having computer and they don’t have problem to
operate a computer
INTERPRETATION
71% of the respondent is having a positive thinking that online trading is a secure
way of trading whereas 185 of the respondent believes that online trading is not a
secure way of trading Satisfaction about the process, by which they will be going
to do a trading that is online trading, should be there in the mind of the customer.
If they believe that there is no risk over the money which they are going to invest
in the market with the help of online trading, there will be a perception to go for
online trading at least one time.
INTERPRETATION
51% of the total respondent believe that online trading is a easy task Whereas
41% of the respondent believes that to deal with online Trading is not a easy task
and 85 was confused to anything about that the trading via internet is an easy
task or not.
There is a difference between the people who believe and who don’t believe is not
very big that is only 10% , the reason of this problem can be if a person is doing
its investment on its own he or she think of the problem of being mistaken in the
transaction. So there is a need of proper training to do trading online.
INTERPRETATION
45% of the total respondents do trading in office timing while 32% do trading in
non office timing and 23% of the respondents do the trading in free time
Here the people who do the trading in office timing they face the problem of not in
the continuous touch of the stock market, so online trading can be one of the good
solution of this problem.
INTERPRETATION
76% of the respondents believe that the introduction of online trading helped to
attract the new customer became the reason to increase the trading volume of the
market
On the other side 16% of the respondents believe that it doesn’t affect the trading
volume
Ans 12. What factor would you consider before choosing an account in a
brokerage house?
We calculate the value of cronbach’s Alpha to calculate how reliable the data
collected by the sampling
Reliability Statistics
.880 .875 21
we also look for that if the value of cronbach’s Alpha is more than average so that
data collected by the sample is showing the habit of the population the data is
representing the whole population we are having the value of cronbach’s Alpha of
21 features that is .880 that is more than good , so here we can say that data is
reliable enough to go further analysis
If we do the analysis the data through value, we will find that few features are
most important for the customer. These are Brand, Compliance system,
infrastructure,
The mean of the given component is around 1.5 – 1.99. That is showing that
customer is looking theses component in the product.
FACTOR NANLYSIS
In the factor analysis we look for the few component and each component is
having 1 or more than 1 features of the product
If we talk of component 1 it include few features which are most important while
designing the product Variety of products offered, Time to open an account,
Brokerage charged, Customer services, Software, Research reports and
infrastructure
services. In component 3 it include four features of the online trading product that
is Effective execution, Regular delivery of contract notes. In component 4 there
are three factor which are most important for the product and they are Access to
back office, Comprehensive stock trading portal, Employees skill According to
component 5 there is only a single feature which is Time to open an account is
important And the component 6 is also having only a single product feature that is
Recording confirmation. If we gone through the all component of the product we
will find that there are few quality or features which a product like online trading
should have.
9 CONCLUSION
The online trading is growing with a rapid pace with the rising level of education
among the customers. The other factors being that the Indian Investor nowadays
wants to deal himself in trading rather than depending upon other middlemen.
They also consider the factors like time saving in doing the online transactions,
convenience etc. Although some people feel that online trading is not secure but
the people doing the trading online is happy about the increasing security
concerns among the companies.
The year 2008 has not been so good for the stock market and the Sensex and
Nifty has been dipping and affecting the business negatively for these companies
but the same trend reversed in 2009 - 2010. This is due to the fact that at these
times people do not prefer to open the DMAT and Trading accounts. So the
companies have to reduce their account opening fees to attract more and more
customers. Also people trade very less in the bearish market and the company’s
profits against brokerage fees soars downwards. It is also a found fact that during
the bearish market the ratio of online trading becomes very less. Also there is an
intense competition among the companies and the companies come up with new
and new promotion schemes such as discounted and negotiable brokerages, Zero
balance accounts, waiving a/c opening fee and AMC etc. As the internet
penetration is growing in India this business holds a huge potential for growth.
Now if the existing company will have to capture the market they will have to look
for the innovation in their product as well as service mix.
The mantra for success in the current situation will be educating the customers
about the benefits of online trading and the amount of ROI that can be generated
through it.
10 RECOMMENDATIONS
The companies should come up with more and more innovative features in their
web portals.
We came to know about most important factor about the product with the
help of factor analysis, so we should go for change the product according to
the customer need.
We should also focus upon the value added services. Generally company
does claim that if you will by the product you will get these benefits but
company doesn’t provide the services here. So services always does matter
when we talk of ONLINE TRADING
Company should also look for the problem which customer generally face
when they do trading (like problem of operating properly)
The customer should be educated regularly regarding the new technologies
and techniques of trading online and also other relevant information.
The companies should look after to develop more safe and secure ways of
transacting business online.
The companies should make maximum efforts to detect fraud cases and
minimize them
11 INDUSTRY RELEVANCE
12 LEARNING
The last two months has been a great learning experience for me because I came
to know about many aspects of online trading which I didn’t know in last 6 years
of using the online trading facilities. Some of the learning of mine is:
13 QUESTIONNAIRE
Dear respondent,
14 BIBLIOGRAPHY
money.rediff.com
www.reliancemoney.com
www.icicidirect.com
www.kotakstreet.com
www.bseindia.com
www.nseindia.com
www.bseindia.com
www.sebi.co.in
www.investorwords.com
www.advfn.com
www.investsmartindia.com
www.trendtraders.com
www.indiainfoline.com
www.sharekhan.com
www.kotaksecurities.com
www.indiabulls.com
www.motilaloswal.com/home
www.religaresecurities.com
http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India
http://www.world-exchanges.org/statistics/ytd-monthly
http://www.nse-india.com/content/us/us_factsfigures.htm