Online Trading - Be Wise - Article from Outlook Money

When Amit Bhargava, a Delhi-based photographer, decided to place a day trading order on the shares of Neyveli Lignite on Friday, 4 January, he says he had no idea that it would spiral into a heart-stopping thriller that would end with him losing Rs 1 lakh. He bought various lots of the stock through the morning, and had set himself a stop loss of Rs 268.50. The ticker on his online portal, Reliance Money, showed the price was Rs 272, he claims. Based on this, Bhargava bought even more shares. By evening, close to end of trading, when he sought to sell his shares, he saw that the price had fallen sharply to Rs 262.90, and the portal, he says, was showing a wrong figure on the ticker. Bhargava sold what he could, and converted the rest to delivery. “I booked losses of Rs 1 lakh that day,” he says. He spent an anxious weekend and alleges that when he tried to get a grip on how many shares he had on Monday, he found that every document sent by Reliance Money had a different figure—the number on the cash ledger balance did not match the number on the contract note and so on.

DIVYA AGARWAL
She works for an e-learning firm in Delhi, but could not participate in the Reliance Power IPO because Reliance Money bungled in opening up her accounts.

“If I had known that the prices were falling earlier, I would have sold a lot more than I did. Eventually, I had 21,200 shares of Neyveli Lignite,” he said. Then started the litany of phone calls and emails to Reliance Money. “At one point, the head of customer care told me not to worry, as I could write off my loss when the stock price of Neyveli Lignite rose,” Bhargava says. He has now written to Sebi (Securities and Exchange Board of India), demanding that Reliance Money make good his loss.
Sudip Bandyopadhyay, director and CEO, Reliance Money, says that it is not true that tickers on its portal are not updated. He says, “Being a registered broker with BSE (Bombay Stock Exchange) and NSE (National Stock Exchange), Reliance Securities is directly connected to both and the price feeds are made available to us by the exchanges. However, clients across the country do face connectivity issues at times due to their poor Internet connection/bandwidth. This is particularly true for remote areas and clients connecting through BSNL and MTNL.”

While Sebi and NSE, the exchange through which Bhargava’s orders were executed, ponder over this case, the fact remains that online trading, while being an extremely convenient way of buying and selling shares, mutual funds and other products, is fraught with several risks. With the recent slump in the stockmarket, brokers have started looking at aggressive strategies to increase the number of customers and to induce them to trade more. These sops range from ‘zero account opening costs’ to ‘lowered brokerages’.

Do not go by broking costs alone while selecting your online broker. For one, the advertised brokerage will probably be applicable only to people executing a substantial number of transactions in a month. Second, offering lower costs could also mean losses of large amounts in other ways as the broker may have cut corners while creating the trading infrastructure to keep costs down.

R. DESAI
A senior financial analyst in Bangalore, says that his broker, HDFC Securities, effects share transactions at prices that are even 8 per cent higher than the price at which he puts a buy order.

Raghavendra Desai works as a senior financial analyst in Bangalore. He has been a customer of HDFC Securities for five years now. “I have routinely faced problems with price fluctuations,” he says. “The price at which shares are acquired should not fluctuate more than 5 per cent (from the time) when I put in a market buy order. But, often, I have noticed that the transaction is effected at prices that are even 8 per cent higher.” He also says that the portal often executes orders in small lots. “If I place an order for 300 shares, I sometimes get only 30. Then I am stuck holding these as orders less than Rs 1,000 are not executed. If you call the customer support centre, you will only hear the standard response of ‘we are looking into this matter’,” he says.

A. BHARGAVA
A Delhi-based photographer, he lost Rs 1 lakh while trading in Neyveli Lignite shares because the ticker on the Reliance Money portal did not show the correct share price.

While choosing your broker, ask around for the one with the best customer support. Problems are inevitable and a responsive customer care makes all the difference. Also, shortlist two or three brokers before finalising your choice. This is especially crucial if you need to have your account opened in a hurry.

Divya Agarwal, who works for an e-learning firm in Delhi, wanted to open a trading and demat account to apply for the Reliance Power IPO. She, and her husband Rohit, an army officer, zeroed in on Reliance Money as a broker and called them with a request to open an account. On 15 December 2007, the company sent an executive, the forms were filled and the signatures placed. Says Divya, “Then the guy vanished. The last date for the IPO was 18 January 2008, and even though we began the process of opening an account more than a month earlier, we had neither a username nor a password at the time of the IPO and could not participate in it.” The company, in fact, even sent her two different kits with different usernames, and then asked her to ignore one of them.

“After all this was over, they realised that the bank account was not linked to the demat account,” she says. “We had to go to their office and fill yet another form. They promised that everything would be done in three working days, but nothing happened. When we enquired again, they had lost a form and claimed that we had not filled it. Fortunately, my husband had the stamped counterfoil of the form and he had to go to their office and threaten that he would not leave until the issue was sorted out.” She feels that the site is rather confusing and says mutual fund NAVs are sometimes wrongly presented.

None of these are isolated events, nor are they specific to only a few brokers. Check out the interface of the portal, most online brokers will have screen shots of their portal on their websites. Ask the broker to send a sales executive who will demonstrate how the system works. Some brokerages have an online screen, others have applications that you can download onto your computer.

The big risk in online trading is that of technology. If you want to quickly sell a share because the prices are going down and the site is ‘temporarily unavailable’ or hangs or refuses to let you log in or execute a transaction, which could be because of a variety of reasons, you will end up with unnecessary losses. Ensure that the broker has a back-up option where you can call the customer support centre and execute the transaction over the telephone.

Always keep an eye on your demat account. Take screen shots or write down the details of your portfolio, especially on days that the stockmarket has seen volatile trade and at the end of the month. Some brokers place your shares in the pool account and trade in them to cover their proprietary positions. Examine the contract note carefully. Never assume that their calculations of brokerages and taxes are right, recheck them yourself. While executing buy and sell orders, open the NSE and BSE websites to cross-check the latest stock prices, don’t go only by the ticker on your portal.

The agreement that you sign with the broker when you open the account is long and tedious. It is also heavily loaded in favour of the broker. Unfortunately, some of the terms and conditions are mandatory, so you can’t escape agreeing to them if you want to enjoy the convenience of online trading.

Legal action can be taken under Section 79 of the IT Act in case of a dispute with a broker, but compensation for the loss of money or the mental stress undergone is unlikely. Online trading is not for the faint-hearted. Tread carefully.
Thanks to : Outlook Money  
Always maintain a trading diary. If any problem arises, always make a written complaint.

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