Online trading has become a very popular way of making money in the financial markets. And even if that’s the case, there are still some reasons you need to be careful of it. Read the following advantages and disadvantages of online trading to help you decide whether this is for you or not.
Advantages of Online Trading
Here are some of the biggest advantages of online trading.
This is perhaps the biggest advantage of online trading. It reduces the transaction costs and high fees associated with the more conventional brick-and-mortar brokerage firms.
Usually, you will pay around $5 to $10 to be able to buy and sell stocks and exchange-traded funds at an online discount brokerage, according to statistics.
Control and Flexibility
Time is usually of essence and importance when you are trading stocks. The speed of using online trading portals is a benefit to most investors.
When it comes to online trading, it only takes an instant to execute trades. Conventional brick-and-mortar brokers might need you first to set up an appointment, either online, over the phone, or personally, just to start a trade.
Avoiding Brokerage Bias
With online trading, you are basically taking trading in your own hands. That also means you can get rid of any brokerage bias.
Bias sometimes takes place when a brokerage provides financial advice that will benefit the broker more than it benefits you as the investor, such as in the form of commission for selling specific mutual funds and other similar products.
In terms of online trading, lower costs and fees do not necessarily translate to shoddy products. Most of today’s online trading companies provide traders an impressive array of tools offering valuable information and helping them with more optimized trades.
Real Time Monitoring
Most online trading companies nowadays offer real-time stock quotes and trading information that make it easier for you and other traders to see how the trades and investments are performing in real time.
Disadvantage of Online Trading
Investing too much and too fast
Online trading lets you trade with just a push of a button. And because of that, there exist the tendency of making poor investment choices or overinvesting.
Online investors can guard themselves by understanding the stocks that they are buying and setting up safeguards in fast-paced markets. Placing a limit order on your account is one way to control what you buy and how much of it.
No Personal Relationship
When you are an online trader, you are basically left on your own. All the planning, strategies, and learning will come as a result of your own efforts, without a broker to help you. For some traders, this kind of independence and autonomy can be stressful.
Experts usually emphasize the importance of research, especially for beginner traders. You as an online trader should learn as much as you can about the companies that you are attempting to trade.
It is Addictive
According to recent studies, online traders experience a certain feeling of high when they start trading. The studies found out that some traders choose strategies that involve investing in risky stocks that offer chances of huge gains but also equally huge losses.
Internet and Tech Dependent
Obviously, one cannot be an online trader if the internet fails and the power runs out. If the connection is too slow or too unstable, your online trading career can be jeopardized and can be unsuccessful.