To understand and discuss the pros and cons of online trading it is essential to first understand what is meant by online trading and how is it going to help us.
What is online trading?
Online trading is in simple terms the process of buying and selling financial securities or currencies through an internet based brokerage’s trading platform.
Online trading or direct access trading of financial instruments has grown tremendously popular over the past few years and today almost all financial instruments can be traded online including stocks, futures, commodities, bonds, options, ETFs, Forex currencies and mutual funds.
The difference between traditional trading and online trading is that in the former selling and buying of instruments is done using a telephone or some other method of communication and this involves a broker generally who completes the trading process and charges commission for the services rendered and they can be quite high. Apart from this the process is usually slow and takes a lot of time to execute. Those who have less number of trades and the long term investors benefit out of this type of trading.
But in online trading the transaction are executed through an online trading platform which is provided by the online broker. Here all of the trading decisions are usually made by the trader directly and depends upon the information that has been gathered. In this type of trading the trade is executed in real time. Here also online brokers charge trading commissions which is generally very low.
Pros and cons of online trading
The biggest one is the lower commissions charged by the brokers. Larger the transaction lower the commissions charged, so you will be saving money.
The next big benefit of online trading is that online brokers have no idea as to what your trading decisions are; they simply buy and sell as told by you.
Another great advantage offered by online trading is that investors have at their disposal multiple software programs which they can use for learning a lot of things related to online trading. They can learn currency trading basics, evaluate stock charts, look at real time stock prices, etc which will help the investor to decide which course of action is expected to result in giving positive returns.
Online trading helps the investor to make snap decisions and implement them without any loss of time; you sure know that even a fraction of a second can have an impact on the profits you can make while trading especially in stocks and currencies.
In online trading you have no limit or restrictions on the size of the trade; it can be small or large amounts of money. Whereas outside of the internet most brokers specify minimum trading amounts.
Not many but of the few the main one is possibility of trading loss due to mechanical or platform failures and speed of the internet connection.
The other is expenses towards monthly software usage fees and inactivity fees charged by some online brokers.
The online traders are totally responsible for their decisions in trading since there is no one to help or advise them in this regard.
The pros and cons of online trading have been explained in brief here for you to better understand the nuances of online trading.