The pros and cons of online trading

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January 27, 2013 by tradersnote

Over the last decade there has been a boom in online trading. As people have gained confidence and competence in conducting activities online, they have, in swarms, begun buying and selling their stock, currencies and other assets through online trading.

This increasing number of traders on the Internet means online trading companies are competing for custom. Companies may offer more services, lower commission rates, free market information and a more personalised service. If you want the best offers, it is worth trading online as it is through online accounts that companies really bring out the freebies. The software and information that comes free with many online accounts means that investors can now get their hands on a variety of trading tools. Before the trading went online, such resources would only be accessible to the brokers themselves.

The main advantage of online trading is convenience. Unlike trading over the phone, you can access your accounts whenever you want. Many online trading companies therefore know to attract users they must make trading a simple and easy process. This means easy to navigate websites and the distinctions between different accounts set out clearly. However, simple and easy shouldn’t mean limited. Good companies for online trading will have endless information to help you make the right decision. Though their website might have snappy bullet points and offer relatively short forms for applying for an account, it should also be easy for you to find information on exactly what each type of trading entails and all the finer details of what their accounts offers.

So what are the main risks of online trading? The freedom it offers means that potentially the relationship with your trading company is now reduced. It is therefore important to find a company that will assign you a personal dedicated broker and is easy to contact whenever you need them. Many companies that specialise in online trading still welcome their clients to come visit them at their offices to discuss their trading options. Online trading should make investing easier, but it shouldn’t wipe out the need to develop a familiarity with your broker.

Individuals can learn about the market, but your broker is trained to understand it and works on it full-time. That’s why it pays to keep perspective; online trading gives you greater independence as a trader, but be realistic about your own limitations. How much time are you investing in understanding the markets? How much experience of trading do you have? Your online trading company will almost always possess more trading knowledge than you, and it is important to use this.

Despite the boom in online trading, there are threats to privacy and security that cannot be eradicated completely. At your end, you can ensure your computer is protected and take reasonable steps to avoid intrusions into your computer (not opening suspicious emails, etc). Your online trading company should also be using the best security protection out there and some may even hire professional hackers to test the security of their systems. However, there is always the chance that your passwords and identification information could be stolen. This is not a danger limited to online trading; it also affects online shopping, social networking and other online activities.

The final risk of online trading is that as it is so easy to trade, traders can trade too often. By being able to trade frequently and easily opens up the possibility of traders acting on hunches, rumours, non-professional advice and simply not taking the time to weigh up an investment.

The world of trading will never move backwards; and the boom of online trading only looks set to grow, with increasing numbers of trading companies only existing online now. There are many benefits for investors; ease, convenience, the ability to empower yourself through the access and knowledge available, greater familiarity with market action and independence. However, each of these advantages comes with the possibility for traders to act without due caution. It may not seem like a very modern notion, but by still taking your time and consulting your broker you can avoid making mistakes when trading online.


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