About Online Trading

Published : 13 years ago, on 08/03/2012

Over the past few years, growing economic turmoil across the world has compelled many individuals to reconsider their options when it comes to retirement planning. The earning class is constantly in search of options that not only enable us to secure our hard-earned money but also multiply the same for a good living, as not everyone is born with a silver spoon in their mouth.

Consider this. Do you make shopping lists before going to the supermarket? What about wish-lists for products you want but cannot afford at that exact moment? This is exactly the essence of financial planning – determining what you need and afford at a certain time and finding the most convenient way and time to purchase those items. Hence an efficient financial planning will allow you to find out the most convenient way and the right time to make acquisitions without ending with a big hole in your budget.

We can find different companies showing us ways to do so. Not that these companies are set up recently, but are present in the financial market for quite some time now.

Financial instruments come in all shapes and sizes and choosing the right place to entrust your money can be a mystifying task. However, with a little knowledge, anyone can become an investor and many individuals are turning towards fixed rate bonds as their preferred option when browsing high interest savings.  Now the question is how and where can you invest this money? Well, there are many options/or safe havens one can find. There is an abundance of qualified financial planners/ firms in the market who can suggest you suitable ways to help you identify products which turn out to be a real cash cow for you in the long run.

There are ways of investment that may be risky (esp. stocks/shares/mutual funds) or non-risky stuffs- which is to safeguard oneself from huge financial sufferings.
As far as the risk factor is concerned (trading into stocks/shares), there are firms which promises to help manage the your(trader) portfolio while paying personal attention to the shares you buy, albeit suggest you the profitable shares to be bought by paying the required amount of commission for their services.

But the invention of internet has brought about many changes in the way we conduct our lives and our personal business. Since the invention of internet people have been able to do practically everything virtually. We can pay our bills online, shop online, bank online, and even date online!

Erstwhile era of trading involved cries across the floor of stock exchange to trade in paper shares. Thanks to modern advancements in mobile technology, Smartphone users can tap into a variety of mobile applications related to business news, industry information and financial market updates. Mobile trading applications have changed the way people think about trading and have empowered and encouraged more individuals to invest in the stock market.

Even the brokers have incorporated this technology to attract more clients and create more knowledge while trading. Most brokers and brokerage houses now offer online trading to their clients. Interestingly, online trading activity costs less, so that the client does not feel the pinch. Gone are the days when clients had to worry about the woes of losing the paper shares accidentally.  Online trading, also known as direct access trading (DAT), has given anyone who has a computer, enough money to open an account and a reasonably good financial history, the ability to invest in the stock market. You don’t have to have a personal broker or a disposable fortune to do it, and most analysts agree that average people trading stock is no longer a sign of impending doom.

Now the trading in paper shares is replaced with Demat trading. Demat trading means the shares are held in electronic form with depositories. Demat trading is a prelude to online trading. Dematerialization of all shares has provided a platform for online trading and today online trading has spread its wings to futures /derivatives trading in stock market, investment in mutual funds, post office schemes, insurance applying for initial public offer (IPOs)and commodity trading.

Other advantages of Online trading includes:

• Fully automated trading process which is broker independent
• Informed decision making and access to advanced trading tools
• Traders/investors having direct control over their trading portfolio
• Traders’ ability to trade multiple markets and/or products
• Real time market data
• Faster trade execution
• Discount commission rates
• Low capital requirements
• High leverage offered by brokers for trading on margin
• Easy to open and manage account
• No geographical limits

But the question arises that “is online trading the safer alternative to regular paper-share trading?” Analysts seem to differ to this opinion. There are certain drawbacks to this mechanism as well.
Disadvantages:

• Need to activate speedy internet connection
• Online frauds by hackers.
• Non maintenance of secrecy for password by user leading to misuse.
• The requirement to fulfil specific activity and account minimum as demanded by the broker
• Greater risk if trades done extensively on margin
• Monthly software usage fees
• Chances of trading loss due to mechanical/platform failures
• Online traders are solely responsible for their trading decisions & cannot expect any personal assistance in the due course of online trading.
• The fee involved in trading varies considerably with broker, market, ECN and type of trading account and software.
• Some online brokers may also charge inactivity fees on traders.

For a newbie in stock trading, it is advisable to hire traditional brokers who can not only assist you with the right selection of stocks, but also listens to your requirements, answers your questions for a better understanding of the financial market.

Again, online trading is a beautiful thing which is easily accessible – but it isn’t for everyone. So, think carefully before you decide to do your trading online, and make sure that you really know what you are doing.