Information is power. That is no less true in online trading. To make educated decisions when trading online, you’ll need to know what is right from what is wrong. Also, information will give investors reasonable expectations of success of their online trading ventures.
Here are the answers to the frequently asked questions about online trading:
What is online trading?
Typically, online trading refers to the purchase and sale of securities through the Internet or any other electronic means, for example, touch-tone telephones, wireless access, and other novel technologies.
The online trader can access the website of his brokerage firm via the regular internet service provider. After accessing the brokerage firm’s website, the customer can review information that the website provides, log into his account, place orders, and then monitor his account’s activity.
Is it possible to open a trading account online?
It is possible to open a trading account with your brokerage firm online, but you might have to wait for the brokerage firm to receive and process a signed application from you before your account becomes active. Though some firms may permit you to use electronic signatures, others often require a manually signed document. Some companies can gather necessary information for your account through their website, then send you the pre-completed application so you can sign and return.
Therefore, due to these discrepancies in the requirements of each firm, it is imperative that a prospective online trader checks with his brokerage firm for clear information on specific guidelines.
Must a person use a brokerage firm or he can bypass the stockbroker entirely?
An online trader must always use a brokerage firm. That is despite the fact that a customer can enter orders for trades through the internet. Using a brokerage firm is necessary because ordinarily customers do not have access to the securities market and, thus, ought to use a brokerage firm so as to execute their trades. It is imperative for the customers to do their homework, especially where their investments are at stake.
How does a person know if his brokerage firm received his order?
It is not a given that a brokerage firm will receive a customer’s order immediately. There are some issues such as market volume, high internet traffic, and other issues with the system that may hinder a customer’s access to his account.
These issues may also delay the transmission and reception of a customer’s order by the brokerage firm. It is important for the online trader to apprise himself of his brokerage firm’s notification procedures. It is important to remember that a notification that a customer’s order was received does not necessarily mean that the customer’s order was executed.
Are customer orders executed immediately?
Most orders that are entered electronically are most often executed quickly, but there is no guarantee that that will always be the case. Sometimes high trading volumes can impede efficiency in executions. And, a delay in execution that is attributed to trading volume may result in trade execution significantly going for lower prices than the price of the securities at the time the order was entered. An online trader should also be aware that different firms provide varying levels of access as well as system sophistication. Other things that may impact the efficiency in execution of orders include marketing volumes, likely delays in order transmissions by the broker, order queues at a market center, and a variety of other system issues.
It is, therefore, important that an online trader chooses a platform with a higher system sophistication. For example, CMC Markets offers a unique and pioneering online trading platform that offers unique products and tools which enhance a customer’s trading experience.
What are the common risks associated with online trading?
As with most ventures, there is always a risk associated with an investment in securities. Investors need to understand their risk tolerance, the principles of investing, and their investment goals before they venture into the market. And to cushion themselves from some of these risks, it is important that online traders do their research before acting on tips provided in bulletin boards and chat rooms.
Also, it is prudent to resist the temptation to overtrade as that can affect the performance of the investment, complicate an investor’s tax situation, as well as raise trading costs.
What kind of securities can a person buy online?
It is possible for a person to buy almost any kind of bond, stock, or mutual fund online.
An online trader should apprise himself of the answers to frequently asked questions so as to know what to expect when he ventures into online trading.