Disadvantages and Advantages of Online Trading

Online trading, or direct access trading (DAT), of financial instruments has became very well liked in the last 5 years approximately. Now just about all financial instruments are offered to trade online including bonds, options, stocks, futures and ETFs forex currencies and mutual funds. Online trading differs in numerous things from traditional trading practices and other strategies are important for profiting from your market.

In traditional trading, trades are executed through a broker via phone or via almost every other communicating method. The broker assist the trader from the whole trading process; and collect and employ information for making better trading decisions. In return on this service you pay commissions on traders, that is often very high. The complete process is often very slow, taking hours to complete a single trade. Long-term investors that do lesser variety of trades are the main beneficiaries.

In online trading, trades are executed with an online trading platform (trading software) offered by the online broker. The broker, through their platform provides the trader usage of market data, alerts, charts and news. Day traders who wish real-time market data are supplied level 1.5, level 2 or level 3 market access. All trading decisions are made through the trader himself regarding the current market information he has. Often traders can trade a couple of product, one market or one ECN with his single software and account. All trades are executed in (near) real-time. In return in their services online brokers charge trading commissions (which can be often suprisingly low - discount commission schedules) and software usage fees.

Great things about online trading include, fully automated trading process which is broker independent, informed selection and access to advanced trading tools, traders have direct power over their trading portfolio, capability 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, selection of routing orders to various market makers or specialists, low capital requirements, high leverage available from brokers for trading on margin, very easy to open account and simple to manage account, with out geographical limits. Online trading favors active traders, who want to make fast and frequent trades, who demand lesser commission rates and who trade in bulk 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 responsible for their trading decisions and you will have often no-one to help them in this particular process. The fees involved in trading vary considerably with market, type, broker and ECN of trading account and software. Some online brokers can also charge inactivity fees on traders. For more information please visit Mini DAX Futures

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