Over the years, the popularity of online trading has steadily grown and today more than 14 million people in the United States alone use some form of online trading platform for all their trading needs. Successful traders like Timothy Sykes have made their fortunes trading on a variety of different stocks and teaching their methods and tips of success to those looking to get into the world of stock trading.
It could be because of the convenience and ease one experiences by accessing their platform simply by unlocking their phone or it could be the level of control and transparency one enjoys by having all their trading information in front of them on a single screen.
On the other hand, there are certain disadvantages associated with online trading as well. Making investments and trading without any input from an expert or financial adviser can sometimes be very risky. There also runs the risk of overspending, especially, if you have an instant form of trading at your disposal 24 hours a day. Despite such risks, online trading continues to grow in popularity and one of the reasons for this can be the growing social resentment towards Wall Street and big banks after the 2008 financial crisis.
To provide some insight, we’ve prepared this list of advantages and disadvantages of online trading. If you’re considering making the switch to a more independent and transparent form of trading, then this guide will help you identify the pros and cons and ultimately help you make your decision.
ADVANTAGES OF ONLINE TRADING
LOWER BROKERAGE COMMISSION AND FEES
The first advantage most people notice with online trading is the reduced commission and fee associated with online trading. However, this has more to do with the fact that online trading platform developers have fewer overhead costs compared to conventional brokerage firms. The initial investment can be very high as servers and state-of-the-art computer security systems can cost a lot of money. However, they don’t need as much manpower as a brokerage firm and will not require as much office space either. These two costs alone make a huge difference in the running cost of an online trading platform.
Conventional brokerage firms charge a higher amount compared to online trading platforms as they have more overhead costs to cover as well including regulatory license fees, salaries, and utilities. The traders, administration team, HR, and other departments of a brokerage firm will require manpower and all these individuals will be drawing a salary. This running cost alone contributes to a big chunk of the commission that these firms make on their trades.
MONITORING AND TOOLS FOR CONVENIENCE
Another massive advantage of online trading platforms is your ability to view stocks and your investments in real-time. With today’s technology, from the convenience of your handheld device, you can keep a check on your investments and trade in real-time, which gives you an added sense of ease. There are also other tools that can make the trading experience more intense and immersive, such as following market trends, keeping track of a specific stock with periodic notifications, and alerts to let you know when there’s been a significant change in the market.
Perhaps the biggest difference between a conventional brokerage firm and online trading platforms is the educational approach that some of these platforms take in the experience they offer to the user. A brokerage firm will not sit you down and explain how the market works, nor will they teach you investment strategies that give you the most profit. If they disclose all of this, then they would be out of a job.
Online trading platforms, on the other hand, provide educational videos and trading tips. You’ll also find platforms that publish their own blogs on a variety of topics. There are also so many complimentary online resources that can help beginners with their trading.
Timothy Sykes Millionaire Challenge is one such resource with a library of more than 4400 videos covering everything from trading strategies to SEC filings. The founder of the platform, Timothy Sykes, has always taken an educational approach and was one of the first traders in the market to provide online courses.
ALWAYS CONTROL YOUR BUSINESS
When it comes to trading, especially penny stocks, time is always of the essence! In a matter of minutes, there can be changes in the market where you can buy and sell for a significant profit or save yourself from any further harm due to a diving stock. With online trading, you can access your account and make a trade within a matter of seconds. Due to strict regulations, conventional brokerage firms need to schedule appointments or execute properly recorded phone calls whenever customers want to execute a trade.
With actual brokers, you run the risk of the broker being biased in favor of a stock or investment that would favor them. By comparison, the information given on trading apps is more fact-oriented and informational and there is no opinion or speculation on any investment or stock.
DISADVANTAGES OF ONLINE TRADING
RISK FOR BEGINNERS IS MUCH HIGHER
Online trading is as easy as pushing a button. Platforms today give you the option to link your bank account directly to your trading account and with the press of a button, you could make a poor investment worth thousands. For beginners, the risk is higher because they would be undertaking the activity without having any prior knowledge of how trading works and what the risks of a specific type of stock are. You could end up losing thousands in a matter of minutes with no recourse whatsoever.
YOUR INFORMATION IS AS GOOD AS YOUR INTERNET
As the name would obviously indicate, online trading requires a constant internet connection. You can only follow real-time market movements and information or trade if you have a working internet connection. If your internet decides to have a bad day, you could lose out on a lucrative trade just because the internet was too slow.
As you can see from the above, the advantages of an online trading platform far outweigh the disadvantages. The biggest plus point that a trading platform enjoys is the real-time monitoring and control one has over their investments at all times of day and night. This quality piques the interest of millions instantly, especially after the experience of the 2008 financial crisis. With increased control and transparency, people feel a lot safer and are more willing to invest in the market.