Last Updated on July 13, 2012 by Mike

Online trading Facts

Online trading is an increasingly popular way of trading equities and other financial investments. Among the advantages of trading online include the real time or near real time trading environment, the ease of access and the simplicity of completing transactions.

Investors trade futures online, sell or buy foreign currencies, and conduct financial transactions of all kinds on a 24/7 basis over the Internet.

Advantages of online trading

Among the important advantages of Internet trading accounts are:

• Real time access – Online trading allows you to access real time or near real time prices and to make trades according to the more recent data. Real time access is important for those who trade futures online or for any other type of highly volatile trading including forex trading, day trading and commodities trading.
• No full time broker fees – While clients must pay for online accounts, in most cases they will not have a full service broker. In comparison to working with a broker, the fees charged on trading sites offer significant savings.
• 24/7 access – When traders work with an offline firm, they generally will only have access to their brokers during working hours. An online trading account is accessible 24/7 including on holidays. While investors may not always be able to trade at any period, they can still conduct research and check futures and other types of data online.
• Ease of account access – Traders can log into their online trading accounts from any location with mobile Internet access. So long as they have a 3G phone or are near a Wi-Fi hotspot, they will be able to access their accounts with mobile devices. In comparison, a regular brokerage account often involves playing phone tag with personal brokers.
• Speed and ease of transaction – Unlike an account with an offline brokerage firm, the online account generally does not require making any phone calls to conduct trades. The investor actually carries out most transactions online using simple web interfaces. In some cases, calls may be required to complete certain types of trades. However, in most cases, the investors are able to fully trade stocks online or complete other types of financial transactions.

Some concerns regarding online stock trading

Probably the most important concern expressed about online trading involves security. Many potential investors are worried about privacy of their information and about the possibility of hacking or identify theft.

Another concern is that online trading is largely “do it yourself.” Most online trading firms do not offer full service brokers for their clients. Investors are responsible for doing the necessary research and for conducting most of the trades on their own. They will also be responsible for watching prices and trends. No one will be there to warn them if a particularly currency if falling rapidly, for example.

Online trading security

Because of the very sensitive nature of online trading and the possibility of suffering monetary loss, trading websites generally have more intense security protection than other types of sites.

For example, many trading sites use virtual keyboards that require users to click on icons of letters or other characters when entering their passwords. The virtual keyboard is designed to defeat malicious software that is used to hack passwords as they are typed on conventional keyboards.

Another security feature found on many online trading websites is the requirement of a second password for actual trading. For example, the user will be able to access prices, research information and other data when they login using their regular password. However, when they are ready to trade stocks online or to trade commodities online, they must enter a second password to complete transactions.

Trading on one’s own

One of the big differences that distinguishes online trading from offline trading is that most online trading places the burden of responsibility on the investor.

The advantage of this is that investors save money on broker fees and they can work very quickly without waiting on other people to complete their trading transactions. However, to be successful in online trading, investors must learn all the “tricks of the trade” and they must be vigilant if they are involved in volatile markets.

Many online traders use special software applications that help them monitor markets and decide when to buy, sell or hold. These applications are generally able to access financial markets using the Internet and they use special algorithms to make trading decisions.

Online trading accounts also generally provide their customers with a great deal of research material including tutorials, white papers, analysis, company information, recent news articles and other information of importance to online traders.

Some of the information offered on web trading sites is hard to access elsewhere or may even be material produced exclusively for the site.

Types of online trading accounts

The basic types of online trading accounts are the cash account, the margin account and the virtual account.

A cash account is a very popular type of online trading account that requires users to have sufficient funds to complete a transaction. The investor will deposit funds into the cash account and can purchase stocks or other investments based on the current value of the account. With the cash account, the investor cannot lose more than the amount deposited into the account.

The margin account is used for riskier types of trading when it is possible for the investor to lose more money than they originally invested. A margin account in essence allows the trader to borrow money from the online brokerage company to purchase certain types of investments.

Margin accounts generally involve interest rates on the money borrowed, so investors must take these rates into consideration when calculating gains or losses.

A virtual online trading account allows users to buy or sell investments without using actual money. Virtual accounts are used to training investors or for practice purposes. The virtual accounts acts just like a regular trading account except you only win or lose virtual money. Even many expert traders use virtual accounts to fine tune their investment strategies.

Choosing online trading accounts
The best place to search for Internet trading accounts is right on the Internet using major search engines like Google, Yahoo and Bing.

Simply enter in the appropriate keywords and phrases. For example, for those interested in finding the cheapest online stock trading available, they can enter a search query like “cheap online trading.” For someone interested in online trading in Canada, they should include “Canada” with their search terms.

Of course, consumers must take care when choosing an online brokerage firm to make sure that the company is reliable and has a good track record. Generally it is best to avoid newer firms unless they are managed by people with proven experience with other companies.

Using the major search engines, look for review or comparison sites that provide information on the available online trading firms. At some of these sites, you may be able to find information provided by former customers that can be very helpful in making decisions on specific companies.

If you have any questions about the services offered by an online trading website, ask for information using the site’s contact web page.