With the technology advantage, more and more people have started investing in the stock market on their own. It has become very easy to open a trading account online as compared to offline. There is just a KYC that needs to be done and that also can be done online easily with a Pan card and Aadhaar card. Today, in this article, we will discuss online vs offline trading account. Their pros and cons, benefits, and everything else that you need to know.
What is Online Trading Account?
An online trading account is basically an internet-based portal through which the account holder can buy/sell stocks directly the portal. This is like having a bank account through which you can send/receive money. There is no dependency on the stockbroker in the online trading account.
What is Offline Trading Account?
An offline trading account is basically a traditional broker account where you need to call the broker for placing your buy/sell orders. You directly don’t have access to the stock market portal so you need to inform your broker of the transactions. The broker in turn places the order on your behalf.
Now as you have a fair idea about both types of trading account, let’s compare both the types of trading account.
Online vs Offline Trading Account
We will compare both the trading accounts based on the below features.
Ease of doing transaction
In online trading, a trader can place a buy/sell order without any assistance from the broker. A trader can place the order directly on the portal through the desktop or even a mobile app. It is so simple that anyone can make the transaction online. Not only this, online brokers have started giving market research reports and tips as well. The online trading account makes the trader self-reliant in picking the stock and placing the orders.
Offline orders need to go through the broker every time. There is a dependency on the broker for doing any transaction offline. This may take more time and sometimes you may miss the opportunity if the scrip is highly volatile. There is also a chance that your broker’s phone line gets engaged and causes a delay in place of the orders.
Score: Online 1 Offline 0
Online trading accounts are known as discount broker account. The charges for placing an order are very low as compare to the traditional offline brokers. Some brokers like Zerodha and Upstox are offering zero brokerage on the equity cash segment transactions. These online trading accounts also provide higher margins on the transactions as compared to the traditional brokers.
Offline trading accounts need to maintain a huge infrastructure and hence they are charging higher brokerage as compare to the online brokers. Gradually new age India is moving towards the online trading accounts as they are cheaper and faster.
Score: Online 2 Offline 0
Online brokers are providing research reports free of cost to their clients. They are also sharing many important event outcomes and the probability of the stock market direction. This gives confidence and direction to the clients so that they can make an informed decision on their trade.
The offline trading account doesn’t provide such research reports to their clients. They in fact don’t have the access to such market research. With the limited infrastructure, they cannot provide market insights to their clients. Few offline trading brokers have started giving tips to their clients based on the market analysis they do by themselves. But it has many limitations.
Score: Online 3 Offline 0
Control on Fraud
In online trading, the user has all the access to the portal through which he makes buy/sell orders. He is in complete control of his account and the money he has deposited into the online account.
While in the offline trading account, the client is at the mercy of the broker and he has to approach the broker every time he wants to do any transactions. Sometimes, it may happen that the broker may misuse the client’s money and the chances of fraud are higher than the online trading account.
There is a flip side also for the online trading account. The user has to ensure the security of the online portal’s ID/password. If the same is compromised, then there are chances of financial fraud. One has to be vigilant while doing any online transactions.
Score: Online 3 Offline 1
Faster Money Transfer
In online trading, the account is directly linked to the client’s bank account. So money transfer is easy in this case no matter what is the transaction type whether it’s a transfer-in or a transfer-out transaction. The client just has to make the online request through the portal/mobile app for withdrawing the money to his bank account.
In offline mode, you have to give instructions to your broker for a money transfer. The broker will issue a cheque in the client’s favor and the same will be deposited in the bank account. This entire process takes time. Usually, it takes around 3-4 days, while in online transfer the funds will be available in your bank account in a maximum of 2 days.
Score: Online 4 Offline 1
The online account provides additional features like investing in mutual funds, bonds, applying for IPO, etc. These all transactions can be done through a single account. You don’t need to have different accounts for different needs. One account provides all the necessary access to various products and investment avenues. For example, if you have idle money lying in your trading account, you can invest the same into liquid funds for a limited time period.
An offline trading account doesn’t provide a full basket of products. It is a stand-alone trading account that provides only a stock buy/sell facility to its clients.
Score: Online 5 Offline 1
The online trading account provides all your transaction history at a glance. You can get the details of all your transactions in just a few clicks. Even you can check your P&L statement as and when you want to. It is as simple as checking your bank statement for a particular period. An online trading account provides the feature for monitoring your investment in real-time.
In an offline trading account, you don’t have the access to your trading P&L account or the transaction statement. You have to ask the same from your broker and he will provide the same on a need basis. There is a dependency on the broker for the account statement.
Score: Online 6 Offline 1
Online vs Offline Trading account – Which is better?
I think there is no need to give the answer to this question. From the above comparison, it is clearly coming out that the online trading account is better in many ways as compared to the offline trading account. What one should look for in a trading account? – There should be ease of doing transactions, safety, security, cost-effectiveness, faster and handy. All these features are available in the online trading account.
However, there are few drawbacks of online trading account as mentioned below.
Personal touch is missing
In an online trading account, the user is doing all the things on his own so he never needs to go to the broker for any need. This way he may lose the personal touch with the broker who can guide him on his investment decisions.
Dependency on the internet
For using an online trading account, you need a strong internet account all the time. If you don’t have a reliable internet account then you will not be able to use an online trading account effectively.
Knowledge of using computer/App
Since an online trading account requires the use of a computer or mobile app the user needs to learn to use a computer or mobile app. Some old age people find it difficult to use a computer and mobile app, so these set of people will not able to use the online trading account.
Looking at the various comparison between online vs offline trading account, the winner is surely an online trading account. Everything has pros and cons, but here you will have higher benefits in the online trading account. I personally use the Zerodha trading account for all my investment needs. Hope this comparison helps you in making an informed decision on the online vs offline trading account.