Disadvantages and Advantages of Online Trading

by Eric French Professional Writer Online trading, or direct access trading (DAT), of financial instruments has became extremely popular during the last 5 years approximately. Now just about all financial instruments are for sale to trade online including options, bonds, stocks, futures and ETFs forex currencies and mutual funds. Online trading differs in numerous things from traditional trading practices and other strategies are essential for profiting from the market.

In traditional trading, trades are executed via a broker via phone or via any other communicating method. The broker help the trader from the whole trading process; and collect and use information for creating better trading decisions. In turn of the service it costs commissions on traders, which can be often very high. The full process is generally very slow, taking hours to complete an individual trade. Long-term investors that do lesser quantity of trades would be the main beneficiaries.

In online trading, trades are executed via an online trading platform (trading software) given by the web based broker. The broker, through their platform offers the trader access to market data, charts, news and alerts. Day traders who wish real-time market data are provided level 1.5, level 2 or level 3 market access. All trading decisions are produced through the trader himself regarding the marketplace information they have. Often traders can trade more than one product, one market and one ECN with his single software and account. All trades are executed in (near) real-time. In return with their services online brokers charge trading commissions (which can be often really low - discount commission schedules) and software usage fees.

Features of online trading include, fully automated trading process which is broker independent, informed decision making and entry to advanced trading tools, traders have direct control of their trading portfolio, ability to trade multiple markets and products, real-time market data, faster trade execution which is crucial in day trading and swing trading, discount commission rates, range of routing orders to various market makers or specialists, low capital requirements, high leverage provided by brokers for trading on margin, very easy to open account and easy to manage account, with no geographical limits. Online trading favors active traders, who wish 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 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 there will be often no-one to assist them to within this process. The fees involved with trading vary considerably with type, market, broker and ECN of trading software and account. Some online brokers can also charge inactivity fees on traders. For more information please visit Mini DAX Futures

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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