Online Trading

Financial Dictionary -> Investing -> Online Trading

Online trading is the process of buying and selling financial instruments over the Internet. With the introduction of the World Wide Web, almost all transactions can be carried out using a computer, including stocks, currencies, options and futures.

Online trading has made many financial operations possible. Stock trading, currency trading, and other trading instruments have become increasingly popular due to the easy access provided by the online space. Years ago, only stock brokers had access to information on stock trading. More and more individuals obtain information around the web and get involved in online trading.

Online Stock Trading

Nowadays, companies sell stocks to anyone with a trading account, with the purpose of raising money. When a trader buys stocks, he invests in a company, becoming a part owner in it. Everyone can go online and do that with ease because the process is automated. On the stock exchanges, the trader has to contact a broker and pay him a commission as to buy stocks. The broker then contacts the stock exchange in order to complete the purchase. Brokers are simply individuals who are licensed to trade stocks on the exchanges. They can carry out transactions on the trading floor or they can trade by phone or electronically. On the exchange, a computer or person must match the buy and sell orders. Some exchanges work as auctions while others match sellers and buyers electronically. Obviously, this process is rather slow and expensive. At the same time, online stock trading makes the buying and selling of company shares a lot simpler.

Online Forex Trading

Investors can buy and sell currency online by using Forex software. For a person to participate in the Forex online trading, he has to open a Forex online account on one or more Forex websites. To gain profit, currency trading relies on fluctuating exchange rates of currency pairs. The currency market is the largest in world and can be a good place to make money. However, there is a good chance that it can incur considerable financial loss. In order to make money in Forex trading, extensive practice and experience are required.

Online Trading and Safety Issues

Online trading has a huge money-making potential, but the investor should be careful when it comes to opening an account with a company offering online trading services. Make sure you do some background check on the provider and determine if it has a good reputation. Read reviews and ask around for the best trading websites. In this way, you will be able to avoid scams.

Pros and Cons

Online trading comes with many advantages: brokers are not involved in the process and the cost of trading goes down. Because transactions take place in the online space, the investor has instant access to trading opportunities 24/7. He does not need to consult third parties as to find out the situation on the stock market, the currency market, and other financial markets.

However, there are some disadvantages to online trading. Since the investor is not related to a broker, transactions can pose risk, especially for beginners. If trading is not done in a proper manner, the investor runs the risk of losing considerable amounts of money. Before making a decision to invest, get very familiar with the trading process, the risks involved, and the best strategies and practices.