What is Online Trading?
Online trading is just simple as selling and buying assets through online trading platforms. These platforms are normally provided by the internet-based brokers. They are always available to every single investor who wants to try to make money in the market.
Online trading is also known as e-trading or self-directed investing.
Investors who use online trading increased intensely in the mid-to late-‘90s. That was the time when the affordable high-speed computers and internet connections were introduced to the people.
Here are some examples you can trade online; Stocks, Bonds, Mutual Funds, ETFs, Options, Futures, and Currencies.
Risks in Online Trading
If you think online trading is easy, you should consider the risks that come with online trading. Here are some risks you could avoid along the way.
Concerns in Security
Any financial transaction online, like trading stocks online could pose a security risk. Despite the security precautions, there is no guarantee that a hacker will not find his way into your account. Then he or she will take your vital and your private financial information.
Remember that if your online trading account is huge, you are at risk to lose a serious amount of money. Make sure you choose a unique account password and you have to change it regularly.
When the stock market has closed for the day, that is when online trading often occurs. Traders or investors perform transactions by using electronic communications networks on which buyers and sellers are matched via computer systems.
You should know that the possible drawbacks to trading after hours could include increase in price volatility, reduced ability to act upon current quotes and more competitions with other professional traders.
Another thing is that Liquidity can also cause you some issue, as you may not be able to convert your stocks to cash quickly if the need arises.
Technical difficulties with the site you are using can cause delay any transaction, resulting in unintentional and undesired consequences.
An example of this is when you purchased a stock at one price, but a system failure may have negated the transaction. However, once the things are up and running again, the stock price may have increased. As a result, you could end up paying more for the stock you bought than you intended.
Always remember when you seek an online broker, you have to check into the safeguards it offers to protect you if this kind of incident occurs to you.
Too Much Talking
Online trading creates online chat rooms and forums where investors can meet, talk, and share information with one another. Unfortunately, these kinds of meeting places can be a breeding ground for gossip, misinformation, and even the spreading of false stock tips.
As a trader, it is important for you to research any information you gathered from any chat rooms or forums before taking action based on a recommendation from a chat room.
Pros of Online Trading
Just like any other investment out there, online trading has its own pros and cons that you should know if you are planning to enter online trading.
Here are some pros in online trading:
As you can see, personal brokers charge you high fees. You should know that the fees of brokers vary greatly depending on their level of expertise and years of experience in the business.
Take note that brokers provide a personalized, client-based service similar to the way many lawyers operate, so fees will be substantial. The better your personal broker is, the more you’ll pay him or her.
Remember that small fees are a massive pro for online investors. Since web-based trading platforms charge a mere fraction of what personal brokers charges their clients and online trading could lead to higher returns.
No Brokers Needed
Before technology got popular, when you wanted to trade on the stock market, you will need to hire or to look a personal broker.
A broker is someone who is licensed and trained to bid on the stock market on your behalf. A broker is also here to explain to you the pros and cons of buying a particular stock, bond, or mutual fund.
You should know as an investor, brokers are professionals who substantially lessen your risk with investing. However, brokers can create a barrier that prevents entry to the stock market. But in online trading anyone can trade right away.
You Could Trade 24/7
We all know that stock market is ever changing. Now with online trading, you and anyone can place bids anytime, anywhere.
With Online Trading There is No Financial Minimums
Personal brokers do prefer to work with clients or investors who have several thousands of dollars – take note, several thousands of dollars – to invest.
Now, for those who do not have that kind of cash, especially for if you are just starting in the market, online trading is great for you. This is because in online trading you can begin buying penny stocks with just $100 or less.
Online Trading Can Give You Tools and Information
Since most of the web-based trading platforms can give you access to sophisticated, informative tool for trading. With these given tools and a plenty of self-education, you could make wise decisions and investments.
Cons of Online Trading
Okay, now we move on to the cons of online trading. While trading online has many potential advantages, there are also some several disadvantages.
As a product of a larger volume and market participation attributable to electronic trading, periodic spikes in pricing volatility have grown in frequency and magnitude.
With the ability of traders and investors to enter a given market at near-light speeds, swings in prices become sudden and sometimes unpredictable.
Since online trading provides access to many different kinds of markets, it also makes high degrees of leverage on a 24/5 basis.
The emotional state of a trader is constantly being addressed, as greed and fear often drive impulsive behavior.
From the beginning, scams and outright fraud have been a part of the financial world. And the world of online trading is no exception.
The scale of “get-rich-quick” trading systems, negligent analysis, and outright market manipulation, which are always present in the environment of online trading.
You should know that the majority of unsuccessful online traders are a victim to at least one of many factors. This could make the achievement of consistent profit a challenge.
Trade is shown in the electronic marketplace through a vast technological infrastructure.
A countless number of routers, mainframes, and servers all play their role in a trade being executed from mouse-click to market. However, varying degrees of participants’ experience involve unavoidable latency in their trade.
Online trading is made for every traders who is just starting in the investing world. It is easy to use and you do not need anything to start trading.
However, you should know the risks in online trading. Do your research first, know the facts and risks, so you will not fail along the way.
Before starting your journey in online trading, you should know the things that could help you along the way and the things you should avoid that could drag you down.
Always remember, to be a successful trader you should have the knowledge and courage. So you could face all the struggles that are waiting for you along the way.