The Pros and Cons Of Online Trading
Online trading, also known as DAT (direct access trading) is a highly popular type of trading of financial instruments. Just about every financial instrument can be traded online, including mutual funds, forex currencies, ETFs, options, futures, bonds and stocks. Online trading platforms have a number of differences compared to traditional trading practices, resulting in different strategies required in order to profit from the markets.
Traditional Trades – How It Used To Be
With traditional trades, the trades are conducted through brokers and communication methods such as the phone. These brokers help the trader through the entire trading process, while collecting and using appropriate information in order to make the right trading decisions. In return for such a service, the broker charges a commission, which is usually pretty high. This process is typically slow and completing a single trade can take up to a few hours. Long-term investors that conduct less trades are typically the largest beneficiaries.
When it comes to online trading, all the trades are conducted through an online platform usually known as “trading software” offered by an online broker. By using such platforms, brokers provide their traders with access to relevant alerts, news, charts and market data. The day time traders who require market-data in real time are provided with a “market access” level 1.5, 2 or 3. Every trading decision is made by a trader based on the available market information.
In most cases, traders have the opportunity to trade multiple products through a single account using the trading software. Nearly every trade a trader makes is executed in just about “real time”. In return for their services, online brokers will charge what is known as a “trading commission”.
Pros Of Online Trading
Online trading comes with a fully-automated type of trading process which is independent from a broker and provides access to advanced trading tools. In addition, traders have direct control over their trading portfolio as well as the opportunity to trade in multiple markets or with multiple products in real-time.
Traders can make faster trade executions, which is highly important in the swing and day trading. Traders also have the choice to route orders to different market specialists as well as high leverage which is provided by the brokers when trading on the margins. Opening and managing an account is fairly easy and has no limits in terms of geographic locations.
The Cons Of Online Trading
While online trading is generally advantageous, it does have some minor cons as well. Traders are always solely responsible for each and every trading decision, they are required to complete certain activities determined by the brokers and there is an increase in risks when trades are conducted extensively on the margin, especially considering monthly usage and software fees. Active and reliable internet connection is a necessity and platform or mechanical failures might occasionally cause a trading loss. Still, thanks to its numerous advantages, online trading is a preferred method of trading for the majority of experienced traders.
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