How to start an online trading portfolio

Online trading has eliminated the need to carry physical documents such as share certificates and bond agreements, allowing traders to trade anywhere and anytime via their mobile phones or laptops. Today, your stock, bonds and other securities are safely held in a dematerialised (electronic) form in your Demat Account and can be transferred using a Trading Account.

You can open a Demat Account and Trading Account online with a SEBI-registered stockbroker, like Upstox, and start trading online. Here’s everything you need to know about online trading.

What Is Online Trading?

Online trading refers to the buying and selling of financial securities, such as stocks, bonds, currencies, and commodities, via online trading platforms. Because the market moves rapidly, traders aim to profit from short-term price movements. Therefore, most choose online trading for its convenience, lower costs, and access to real-time market data.

How Does Online Trading Work?

Online trading eliminates the need for human brokers, allowing traders to directly access their investments and place orders. To start online trading, you need to:

• Open a Demat and Trading Account with a SEBI-registered stock broker like Upstox.

• Use trading platforms to track price movements of securities, analyse trends and buy/sell orders.

• When you place an order, the broker passes the order to the stock exchange, such as BSE and NSE, to execute it by matching your order against another trader’s order within seconds.

• If you placed a buy order, the purchased shares will be deposited into your Demat Account within a few hours. If you placed a sell order, the shares sold will be removed from your Demat account within hours.

How to Open a Trading and Demat Account

You can easily open a Trading account online by following the steps below.

Step 1. Choose a depository participant to open your demat account with. It could be a bank or a trusted brokerage firm like Upstox, authorised by SEBI.

Step 2. Submit a Demat account opening form to begin. Most stockbrokers, including Upstox, provide convenient 2-in-1 Demat and Trading accounts.

Step 3. Fill the Demat plus Trading account opening form and attach the scanned copies of your documents. The list of documents required is given below.

Step 4. After filling the form, you’re expected to sign an agreement with your broker, clearly stating your respective responsibilities as trader/investor and broker.

Step 5. Once all documentation and verifications are done, your Demat and Trading accounts will be activated.

Step 6. Add funds to your Trading Account and start trading online!

Documents Required to Open a Trading and Demat Account

To open a Demat and Trading account, the following documents are required:

• ID Proof
• Resident Proof
• PAN
• Passport-size photos

To open a Demat and Trading account for an NRI, the following documents are required:

• A copy of your passport.
• A copy of your valid visa.
• Overseas address proof and address proof of your workplace.
• A PINS permission letter from an authorised dealer.
• A copy of your PAN card.
• Passport-size photographs.
• Proof of bank accounts.
• PIS approval letter from the Bank
• Cancelled cheque copy of PINS bank account

For trading in Futures and Options, you need to submit proof of income along with the documents mentioned above.

Key Mistakes to Avoid in Online Trading

Here are some common mistakes you must avoid in online trading.

Overtrading

The majority of traders often overtrade either to recover losses or make consistent profits. This could lead to excessive brokerage fees and impulse-driven trades.

Emotion-driven Decisions

Most traders base their decisions on assumptions and emotions, which can lead to significant losses. Avoid emotion-driven trading and research well before placing orders.

Ignoring Risk Management Strategies

Every trader must use stop-loss to cut their losses if the market moves against them.

Herd Mentality

Avoid following the herd and taking trading “tips” from WhatsApp and Telegram groups. Do your own research and use technical analysis to make data-backed trades.

What Are the Risks Involved in Online Trading?

Though online trading can offer short-term profits, it carries extreme risk.

Market Volatility

Equity markets can be highly volatile, experiencing sudden and dramatic price swings. This increases the trading risk, since it makes it difficult to forecast cash flow or secure profitable exits.

Liquidity Risk

Liquidity risk refers to the inability to buy or sell securities quickly at the right price. High market illiquidity results in wide bid-ask spreads.

Leverage Risk

Some traders borrow funds from the broker to take large positions to secure high gains. If the market moves against the trade, traders can face significant losses.

Operational Risk

Operational risk refers to technical failures, such as downtime or internet connectivity issues, that result in missed trading opportunities.

Online trading refers to buying and selling of financial securities such as stocks, bonds and commodities to earn short-term profit. To start trading online, you need to have a Demat and Trading Account.

Before trading in the real market, you should practise in a demo account to gain experience and minimise risk. While trading, remember to avoid emotion-driven decisions, refrain from overtrading, use risk management, and conduct your own research before placing a trade.