Thursday, 28 January 2016

Advantages and Disadvantages of Online Trading

Online trading, or direct access trading (DAT), of financial instruments has became quite popular during the last five-years roughly. Now just about all financial instruments are for sale to trade online including stocks, futures, bonds, options and ETFs forex currencies and mutual funds. Online trading differs in numerous things from traditional trading practices and other strategies are required for profiting through the market.

In traditional trading, trades are executed via a broker via phone or via some other communicating method. The broker help the trader inside the whole trading process; and collect and utilize information for producing better trading decisions. In turn with this service it costs commissions on traders, which can be often high. The complete process is normally very slow, taking hours to carry out one particular trade. Long-term investors who do lesser variety of trades are definitely the main beneficiaries.

In online trading, trades are executed with an online trading platform (trading software) offered by the web broker. The broker, through their platform supplies the trader usage of market data, news, alerts and charts. Day traders who would like real-time market data are offered level 1.5, level 2 or level 3 market access. All trading decisions are produced through the trader himself pertaining to the current market information they have. Often traders can trade multiple product, one market and one ECN along with his single software and account. All trades are executed in (near) real-time. In turn with their services online brokers charge trading commissions (which can be often suprisingly low - discount commission schedules) and software usage fees.

Features of online trading include, fully automated trading process which can be broker independent, informed making decisions and usage of advanced trading tools, traders have direct power over their trading portfolio, capacity to trade multiple markets and products, real-time market data, faster trade execution which can be crucial in day swing and trading trading, discount commission rates, collection of routing orders to several market makers or specialists, low capital requirements, high leverage available from brokers for trading on margin, very easy to open account as well as simple to control account, without any geographical limits. Online trading favors active traders, who would like to make fast and frequent trades, who demand lesser commission rates and who trade in big amounts on leverage. But online trading is not really here for all traders.

The disadvantages of online trading include, need to fulfill specific activity and account minimums as demanded by the broker, greater risk if trades are done extensively on margin, monthly software usage fees, chances of trading loss because of mechanical/platform failures and need of active speedy internet connection. Online traders are fully in charge of their trading decisions and you will have often no person to assist them to in this particular process. The fees associated with trading vary considerably with broker, ECN, market and type of trading account and software. Some online brokers might also charge inactivity fees on traders. For more information please visit Online Broker

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