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Trading online, also known as direct access trading, with financial instruments has become increasingly popular over the past decade. Currently, almost all financial instruments such as stocks, forex, bonds, options, futures and mutual funds can be traded online. There are many differences between online trading and traditional trading, and different techniques and strategies are necessary for so investors can be profitable.
Traditional Trading
In the traditional form of trading, a trade is typically executed via phone by a broker. The broker collects certain information from the trader, and provides assistance during the entire process. During the process, the broker uses the information that is collected to make better decisions during the trade.
In return for the service brokers provide, they charge traders a commission. This commission rate can be very high.
The entire process is time consuming, and it may take several hours for one trade to be executed. Those who do not trade often receive the most advantages from this type of trading.
Trading Online
In today’s world of modern technology, trading online takes place on the Internet via trading platforms or software that the broker provides. Through the platform, the trader has access to certain information about the market including alerts, charts, data and news. Those who are day traders that are interested in real time data are provided access to the market at different levels. These levels are 1.5, 2 and 3.
The ultimate decision is made by the trader with regard to the information that is accessible. Many times a trader has the option to trade on more than one market, product or ECN. The trades are also executed in or near real time. The commission rates are much lower and brokers charge a small fee for the usage of the software.
What Are the Benefits of Online Trading?
One of the main benefits of trading online is that traders are independent of brokers. Traders are allowed to make informed decisions based on the access they have to trading tools.
Another advantage is that traders have sole control over their portfolio while trading. This means that they are able to trade across several markets and take advantage of faster execution of trades. The quickness of trading is vital in swing trading and day trading and discount rates on commission.
This type of trading is very effective for those who prefer to trade more frequently, and who prefer to make trades in bulk for leverage.
What Are the Disadvantages?
Online trading is not for all traders. For example, this type of trading requires that traders maintain a certain minimum in their accounts. Traders are also dependent on the software or platform to function properly, and they must have reliable and fast access to the Internet.
Although many traders prefer to trade independently, those who are new to trading will realize that online trading does not provide assistance. Some online brokers may also charge traders a fee if they are not active.
Trading online is a great alternative for traders who are day traders or prefer to make quick trades on a regular basis. Consider your goals and choose a trading method that will work best for your needs.
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