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What Are the Benefits of Online Trading?

Sept. 14, 2014
Brokers, Investing
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Online trading is easy and quick. You can educate yourself on your investment options, place orders to buy and sell, and possibly make (or lose) a considerable amount of money without ever speaking with a broker or leaving the comfort of your home. As with any investment strategy, there are benefits and risks involved. So, why are more people playing the market through online trading?

It (almost) eliminates the middleman.

Years ago, you couldn’t make a trade without meeting or at least calling your broker. Now, it takes only a few clicks. This accessibility could certainly make online trading alluring for those who may not have had the finances or the connections to work with a full-service broker in the past. Online traders can buy and sell without ever speaking to a broker. This doesn’t mean trading is done with no broker input, as discount brokerages actually facilitate the trade when you click the mouse. However, online trading allows you to trade with virtually no direct broker communication.

It’s cheaper.

Having a broker execute your trades for you costs money. And while you’ll pay for online trades, the cost won’t be as high. As more brokerages allow online access, the prices continue to drop, with many of the popular discount brokerages offering trades for under $10 each and some requiring no account minimum.

It offers greater investor control.

Online traders can trade when they want. In conventional trading, an investor may have to work with a delay depending on when she is able to contact her broker and when the broker is able to place her order. Online trading allows nearly instantaneous transactions. Also, investors are able to review all of their options instead of depending on a broker to tell them the best bets for their money.

You can monitor your investments in real time.

Online brokerages offer advanced interfaces and the ability for investors to see how their money is performing throughout the day. Log in through your phone or your computer and you can see any gains or losses in real time. These brokerages also offer more tools for traders of all levels, posting not only finance news but also providing analytic platforms and research reports.

Potential disadvantages

The main drawback of online trading is for many people the very thing that makes it so alluring: no broker input. Unless you are a well-informed investor, analyzing the markets and determining when and what to trade is a risky endeavor. There is also the risk that the technology could work against you; simple interfaces mean trades and errors are both easy to make.

The disadvantages of online trading are fading as brokerages see the need to make processes as user-friendly as possible. Their websites are offering more tools to educate online traders and even allowing beginners to practice with virtual money before taking the plunge with the real deal. For both experienced traders and those with a limited knowledge of investing, online trading presents one affordable solution.

Stock image via Shutterstock.