How to buy stocks online?

Online stock trading has increased the participation of common retail investors in the stock market. But a lot of people feel fixed when it comes to online stock trading. People are often seen puzzled asking questions like how to buy stocks online? This article has been written to provide a ready made answer to the following tthree questions often asked by investors in stocks:

• How to buy stocks online?
• What is the process of online stock trading?
• How to identify good buy-stocks?

I am sure there are many people who are craving for the above three questions and they will be happy to get a readymade reference here in getmoneyrich.com. I will explain the procedures of how to buy stocks online in simple and easy to follow words. So that a lay man can easily use this information to start trading stocks as quickly as possible. The answer to second question is rather vast. You will appreciate that if the answer to the second question (how to identify good buy-stocks) would have been so easy then every trader would have become Warren Buffette. But never mind I am also not Warren Buffett buy with my experience I have got a knack and few valuable steps to identifying good stocks. I will share my knowledge with my readers. But first things first; let us find out first how to buy stocks online.

There are some very minimal requirements that needs to be fulfilled by people before they can buy stocks online.

How to buy stocks online:

• You need to have a bank account with online banking facility. These days all banks have online banking facilities like ICICI, HDFC, AXIA, SBI, STANDARD CHARTERED, BANK OF BARODA, IDBI, etc. I am sure most of us already maintain a bank account in some of these banks. By chance if you are not using an online banking facility, do not worry. Many banks who do not offer online banking has online fund transfer facility. This is enough for to buy stocks online.

• You need to open a demat account. This is not difficult at all. Approach your bank, fill up a form for opening of online demat account and rest will be done by your bank. Yes its that simple. You will be charged some Rs 500 annually for maintaining a demat account. I am sure it will not be a problem for majority. A demat account is just like your email service. Like email has replaced all paper mails to electronic mails, similarly a demat account stores all your stocks in dematerialized form (electronic form). There are no paper works involved when you are trading stocks online.

• You need to open an online trading account. Online trading account is nothing but a software platform that gives access to you to reach the stock exchange (like BSE & NSE). Online trading account is the one a user actually uses day to day for buying and selling stocks. The bank account and demat account does not come into picture when a user is buying or selling stocks. They are just a back-end facility that helps in operation of online trading accounts. Like bank account comes in picture when a person logs into a trading account and say wants to buy stocks worth Rs 5000. At that moment his online trading account will have zero balance. To feed money into his online trading account he will have to book funds. While booking fund a option is there is onine trading account to link to the bank account and book say Rs 5000 for online stock trading. Similarly demat account comes into picture after a person has purchased a stock. The purchased stock automatically goes into the demat account of the buyer within 2/3 working days.

Basically an investor needs online trading account to buy shares. But his online trading account needs a bank account and demats account to function. These days banks offer a package service where they will open all three accounts for you in one shot. Many investors would like to keep a bank account separate form his normal salary/savings account. For them this package service is excellent. As on today I think a bank will not charge more than Rs 500 to 800 hundred for opening a packaged account like this. But of course the account holder will be asked to maintain a minimum balance in his bank account. These days the minimum balance is Rs 5000 to Rs 10000. But never mind this saving will be very helpful or you to buy some quick valuable shares.

Now let us discuss about the trading process in brief.

With bank account, demat account and online trading account problem now settled an investor is ready to go and buy stocks. So now we can clap for our self that at least we have answered one question and that is how to buy stocks online? I will like to mention that banks like HDFC, ICICI, SBI has their own online trading account platform called HDFC Securities, ICICI Direct and SBI e-trade. Opening a account with a bank who offer all three facilities of online trading account, demat account and bank account is ideal. It will speed up the process of online stock trading.

How to buy stocks online:  Log into you online trading account. To log-in your bank will give you a user name a password. You can change your password on a later date. Use the user name and password to log into your online trading account. The next step after logging in to know the name of the company whose stock you want to buy online. But I will suggest you to do a pre-study before logging into the trading account. Use the website of CNBC for Indian stocks called moneycontrol to evaluate your stocks. Once you are clear that which companies stock you would like to buy and at what price then you log into your trading account and book the quantity and limit price for buying the same. After logging this buy-order in your trading account you will have to wait. Suppose you have set a limit price of a stock at Rs 100, which is now trading at Rs 101, you will not be able to buy it unless the price falls to Rs 100. Suppose you booked 20 nos shares of this company. The total cost after trade will be Rs 100 x 20 = Rs 2000 + brokerage and taxes. Approx you will be chared an extra of 0.5% of your basic price on account to brokerage and taxes.

How to sell stocks online: The process of selling is same as buying stocks. One needs to book the selling order by specifying the number of stocks to sell and at what price. Buy the only difference with buying stocks is that, you do not need to book any funds for selling stocks. And the other obvious difference is you can sell only those stocks that you already have in your demat account.

Here we come at the most difficult question, How to identify good buy-stocks?

I am sure most of my readers are jumping on to this question before seeing the one’s before. I can understand, I till date I sure even the Warren Buffett must be eyeing such tips to add more to this wisdoms. The point is there is no one quick-easy way to identify a good buy-stock. The rule of thumb is only one, focus on the fundamental value of stock and grab it when the stock is available at bargain price. I will list down few excellent questions you can ask yourself before you buy any stock. If you get the answer to all the below questions and you yourself is convinced that this a good buy-stock go ahead and buy it.

A stock is a good buy only when all or majority or the below answers are yes. One quick suggestion that the answer to the below question is not readily available in any financial news paper or internet portal. You will have to do some quick easy calculations by glancing through their financial reports. Indian investors will get them in moneycontrol.

(1) Does the cash produced by the companies operation is sufficient to pay for all operating expenses?

Cash produced form operations (cash flow statement) >/= Operating expenses (Profit & Loss account).

Cash form operating operation can be directly obtained form cash flow statement in the companies financial report (say Rs 204,490 crores). But Operating expenses needs to be calculated by adding up expenses like raw material cost, fuel cost, employee cost (say Rs 160,880 crores). These values are for Reliance Industries for year ending Mar’10. The figures shows that the company is producing enough cash to pay for its operating expenses.

(2) Is company making consistent profits since last five years?

This figure is also available in profit and loss statement of company’s financial statement. Looking at Reliance Industries figures for lat five years following pattern is emerging.

The above figures show that except during the year 2008-09 when the world was facing a financial crisis in all other years the company showed good increase in its net profit. Even during financial turmoil of year 2008-09, the company posted a healthy profit of Rs 15,309 crore which is exceptional.

(3) Is there a growing demand for the products of the company?

Let us take example of Reliance Industries (RIL). Reliance industries has products business like Petroleum refining, Petrochemical, Oil & Gas exploration and production. Broadly we can say that Reliance Industries is in the sector of energy. Its main products are polyester fibre, paraxylene, polypropylene, Purified Terephthalic Acid and mono ethyl glycol. The obvious use of polyester fiber is in textile industry. Reliance feeds its Vimal Brand with these fibers. Other chemical products will be in use till time immemorial for production of other complex chemical compounds.

(3) The products of the company are difficult to duplicate?

The business of reliance industry is a cash rich business. Hence a small player finds it difficult to establish a world class refinery or a chemical based plant. That way RIL is unbeatable. It has its own dominance in the energy sector.

(4) Is the return on asset of the company is more than 8%? For a financial company the return on asset (ROA) shall be more than 1%.

Total asset of a company can be obtained form balance sheet of a company. For reliance it is Rs 199,665 Crores. Net Profit of reliance can be obtained from profit and loss accounts which is Rs 16,235 Crore. Hence return on asset for RIL is 16,235/199665×100 = 8.1%.

If the answer to all the above question is positive, it means that you are analyzing a company of future which may carry a global brand image tomorrow.

-         To know more on calculating intrinsic value of share, please visit this link.

-         You will get some valuable stock investment tip here.

Related posts:

1. Online business savings account
2. How pick online stock trading companies of future
3. Invest your money online
4. Online investing for beginners
5. Online Investing Tips
6. Online Investment has made it easy for investors
7. Use Online stock market investment tools to your advantage
8. Online share market tips
9. Online Stock Market Investing Advice
10. Online Investing for beginners: 2 key steps of starting investing
11. How to invest money: online investment guide