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By
Padmanabhan K
Batch: 2009-11
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GUIDE CERTIFICATE
and not submitted earlier for the award of any degree / diploma
elsewhere.
Date:
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Guide’s Bio-Data
Qualification: B.E.,M.Tech
Nationality: Indian
Academic Details
Job Experience
I declare that the above details are true to the best of knowledge.
Guide’s
Signature
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DECLARATION BY THE CANDIDATE
Date:
Signatu
re
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ACKNOWLEDGEMENT
PADMANABHAN KRISHNAMURTHY
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Abstract
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One of the oldest stock markets in Asia, the Indian Stock Markets
have a 200 years old history.
East India Company was the dominant institution and
18th Century: by end of the century, busuness in its loan securities
gained full momentum
Business on corporate stocks and shares in Bank and
1830's: Cotton presses started in Bombay. Trading list by the
end of 1839 got broader
Recognition from banks and merchants to about half
1840's:
a dozen brokers
Rapid development of commercial enterprise saw
1850's: brokerage business attracting more people into the
business
1860's: The number of brokers increased to 60
The American Civil War broke out which caused a
stoppage of cotton supply from United States of
1860-61:
America; marking the beginning of the "Share Mania"
in India
1862-63: The number of brokers increased to about 200 to 250
A disastrous slump began at the end of the American
Civil War (as an example, Bank of Bombay Share
1865:
which had touched Rs. 2850 could only be sold at Rs.
87)
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Sharp increase in share prices of jute industries in
1880 - 90's:
1870’s was followed by a boom in tea stocks and coal
"The Calcutta Stock Exchange Association" was
1908:
formed
Madras witnessed boom and business at "The Madras
1920:
Stock Exchange" was transacted with 100 brokers.
When recession followed, number of brokers came
1923:
down to 3 and the Exchange was closed down
1934: Establishment of the Lahore Stock Exchange
Merger of the Lahore Stock Exchange with the Punjab
1936: Stock Exchange
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4. Ahmedabad
5. Delhi
6. Hyderabad
7. Bangalore
8. Indore
Types of Transactions
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Indian stock exchange allows a member broker to perform
following activities:
• Act as an agent,
• Buy and sell securities for his clients and charge commission
for the same,
• Act as a trader or dealer as a principal,
• Buy and sell securities on his own account and risk.
In order to lift the Indian stock market trading system on par with
the international standards. On the basis of the recommendations
of high powered Pherwani Committee, the National Stock Exchange
was incorporated in 1992 by Industrial Development Bank of India,
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Industrial Credit and Investment Corporation of India, Industrial
Finance Corporation of India, all Insurance Corporations, selected
commercial banks and others.
Trading at NSE
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Bombay Stock Exchange is the oldest stock exchange in Asia What
is now popularly known as the BSE was established as "The Native
Share & Stock Brokers' Association" in 1875.
Over the past 135 years, BSE has facilitated the growth of the
Indian corporate sector by providing it with an efficient capital
raising platform.
BSE is the first exchange in India and the second in the world to
obtain an ISO 9001:2000 certifications. It is also the first Exchange
in the country and second in the world to receive Information
Security Management System Standard BS 7799-2-2002
certification for its BSE On-Line trading System (BOLT). Presently,
we are ISO 27001:2005 certified, which is a ISO version of BS
7799 for Information Security.
The BSE Index, SENSEX, is India's first and most popular Stock
Market benchmark index. Exchange traded funds (ETF) on SENSEX,
are listed on BSE and in Hong Kong. Futures and options on the
index are also traded at BSE.
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system. Lastly, roles of each involved party were identified in
proposed online system.
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1 TABLE OF CONTENTS
1 TABLE OF CONTENTS 16
2 EXECUTIVE INTRO 18
3 PROJECT DETAIL 19
4 LITERATURE REVIEW 23
4.1 ECOMMERCE 23
4.2 ONLINE TRADING 27
8 ANALYSIS 70
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9 CONCLUSION 83
10 RECOMMENDATIONS 85
11 INDUSTRY RELEVANCE 87
12 LEARNING 88
13 BIBLIOGRAPHY 90
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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.
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.
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3 PROJECT DETAIL
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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
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3.6.2 Exploratory and Descriptive Research
The research is primarily both exploratory and descriptive in nature. The
sources of information are both primary and secondary. The secondary data
has been taken by referring to various magazines, newspapers, internal
sources and internet to get the figures required for the research purposes. The
objective of the exploratory research is to gain insights and ideas. The
objective of the descriptive research study is typically concerned with
determining the frequency with which something occurs. A well structured
questionnaire was prepared for the primary research and personal interviews
were conducted to collect the responses of the target population.
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2. Some respondents might be hesitant to divulge personal and financial
information which can affect the validity of all responses.
3. There is lack of awareness among people about investing in stock
market. So the people who are aware of such things were found in
specific areas for survey purposes.
4. Most people are comfortable with traditional system in small towns and
like to trade from their respective brokers, hence not providing a true
opinion of theirs.
5. Some of the respondents who did not do online trading were able to
respond to only few questions.
6. The survey was done in the some major metro cities and may not truly
express the opinion of whole country.
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4 LITERATURE REVIEW
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.
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application solutions. In fact electronic commerce is a way of conducting,
managing and running business transaction using computer and Internet.
Based on the significant power of World Wide Web and global e-
commerce, the numbers of internet users' have been rapidly increasing
and have widely spread into all aspects of life. It has opened up
tremendous business opportunities for its users. The most common use of
e-commerce is to replace or enlighten conventional transaction methods
and in the last few years a substantial growth of internet-based services
being experienced. According to an Angusreid group study (2008) of
Internet users in 44 countries nearly 220 million of the estimated 500
million worldwide Internet users have already made a purchase or
transactions online. Stock exchange was influenced by Internet
technology as well as other business sectors. Stock exchange as a
critical pillar of each economy, acts exactly the same as a thermometer of
economical condition of the country. The volume of stock transactions, the
index growth and tendency of individuals and legal entities crystallized if
the economy of a country is flourishing or on the other hand continue
recession conditions. Therefore, providing a flow trading process and
accelerating the transaction settlement can create more motivation for
traders to join stock trading exchange likewise cooperate and invest in
companies and finally, in this manner, internet creates an opportunity of
reaching these goals.
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offer suitable services to the traders, market expansion is meaningless. In
other words, it seems that providing and recovering service quality in
this market may enhance traders' 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?
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Communication means keeping customers informed in language they can
understand. It also means listening to customers. It may mean that the
company has to adjust its language for different customers- increasing the
level 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
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customers.
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.
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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.
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4.2.1 Definitions of Online Trading
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:
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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)
• 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
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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).
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4.2.3 Online Trading trends
• Security issues fading: Concerns centered on security issues
(encryption) and customer service issues (upgraded server and
network equipment) are fading as consumers become accustomed to
using the internet on a weekly or even daily basis for many types of
transactions.
• Pricing stabilization: The online brokerage industry has seen severe
price competition over the last two years, with every competitor
lowering commission rates in an attempt to gain as many new
accounts as possible. There is a belief that, prices have started
to stabilize and further price reductions are unlikely from the
present level. While new entrants will have to align commission rates
lower to be competitive, rates of established online brokerages will be
stable over the next year.
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4.2.5 Advantages and Disadvantages of online trading
Trading online the same as other systems has advantages and also
disadvantages. Below the main points are summarized:
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.
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• 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:
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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
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Plan of the country since then the Stock Exchange has expanded
continuously.
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5 THE EMERGENCE OF ONLINE TRADING IN INDIA
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1. Share Trading Account:
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.
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Advantages of ICICIDirect:
Disadvantages of ICICIDirect:
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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.
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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
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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:
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• 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.
• Classic account holders cannot trade commodities.
• Cannot purchase mutual funds online.
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
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is .06% both sides for less than 25 lakhs and .023% for more than
25 crores.
• 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
5. Kotak Flat
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• 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
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
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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.
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5.6 MOTILAL OSWAL
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
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selling these products. MOSL has recently launched a separate branded
product (Purple) for catering to the needs of this segment.
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
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• Zero Brokerage - “Break the shackles”. Get freedom from brokerage
and avail zero brokerage on your trades through us.
• 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.
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Trader Terminal is for high volume equity traders. Trader Terminal
provides high volume trading with powerful interface and fast order
execution
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,
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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
• Provides greater convenience of trade as a person can trade from
home or other convenient location.
• It is cheap in terms of cost associated and offers reduction in
overheads
• A trader can view the historical charts on his computer
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.
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6 GROWTH OF ONLINE TRADING
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
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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
- 53 –
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
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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.
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 wave of online brokerage companies hammered
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down brokerage rates from 1% (in 2000) to 0.25 %, or even lower to 5
paisa.
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.
- 56 –
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.
- 57 –
7 EFFECTS OF ONLINE TRADING ON THE
INVESTMENT COMMUNITY (TME)
• 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.
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the information that is now available to the average investor was once
only available to people working in the business of finance.
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investment decisions. These investors then have an exaggerated
sense of control over the outcomes of their investments.
• 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.
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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
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illusion discussed previously where investors feel that since they have
access to so much information that they can do it better on their own.
- 62 –
7.5 CHARACTERISTICS OF ONLINE TRADERS
• 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.
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market. As a result of this illusion of control, these investors will have
a tendency to trade too often and too speculatively.
- 64 –
7.7 THE FUTURE OF TRADITIONAL BROKERS AND ONLINE
TRADING
• 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.
• 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.
- 65 –
can create a knowledge-based system. Online investing firms might
also consider adding educational web pages and other services that
will teach beginning investors how to invest online.
• Since no online investing firms are the same, investors will value
certain ones over others based on their needs. The new breed of
- 66 –
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.
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as the market picks up and they once again become comfortable with
this new approach to trading.
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.
- 68 –
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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
- 70 –
- 71 –
INTERPRETATION
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).
- 72 –
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
- 73 –
Ans.4 Where do you often invest your money?
INTERPRETATION
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%
- 74 –
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
- 75 –
Ans.7 To operate a computer is easy for me
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
INTERPRETATION
- 76 –
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.
- 77 –
Ans.10 At what time do you trade?
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
- 78 –
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
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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
- 80 –
If we analyze the given Rotated Component Matrix and Component
Transformation Matrix we will find that there are six component are coming
and each of them component include one or more than 1 features in its own
- 81 –
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.
- 82 –
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.
- 83 –
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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
- 85 –
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11 INDUSTRY RELEVANCE
- 87 –
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:
- 88 –
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13 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
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