“Information technology and business are becoming inextricably interwoven. I don’t think anybody can talk meaningfully about one without talking about the other.”
-Bill Gates
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Technology has played a key role in the financial services industry. Today, however, a number of new and rapidly accelerating trends are emerging that promise to usher in an entirely new paradigm. Information technology can no longer simply be an ‘add on’ at the periphery in financial markets but rather must be deeply embedded at its core.
Having understood the pivotal role played by technology in creating efficient markets, stakeholders have taken constructive initiatives in the recent past to employ advance technology to the local financial market. Within such a framework, we will be educating our investors on ‘online trading’.
We want investors to have reasonable expectations about the possible success of their online trading awhile considering the risks as well as the rewards of employing these promising new investing facilities. Given below are basics of online trading.
What is online trading?
Generally, online trading refers to buying and selling securities via the Internet or other electronic means such as wireless access, touch-tone telephones and other form of new technology.
With online trading, customers access a stockbroker firm’s website through their regular Internet service provider. Once there, customers may consult information provided on the website and log into their accounts to place orders and monitor account activity. Some systems even offer basic technical analysis techniques which could be employed when making investment decisions.
A stockbroker firm would provide you online trading facilities when you open an account with them. However, certain companies might provide this service based on the capital invested.
Aren’t online investing and day trading the same?
No. Online investing refers to the method of placing orders via the Internet to buy and sell securities as compared to the method of placing orders by speaking directly with an investment advisor by telephone. Day trading refers to a trading strategy where an individual buys and sells the same security in a short period of time (often the same day) in an attempt to profit from small movements in the price of the security.
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Online trading does not impose a particular strategy for investment
Is there a brokerage fee involved or do I bypass the broker completely?
All trades involve a stockbroker firm even if a stockbroker doesn’t directly help with the trade. Although customers may enter orders for trades via the Internet on their own, customers do not have direct access to the securities markets and therefore, must go through the firm.
Is my order executed immediately?
Orders entered electronically are usually executed quickly. However, there is no assurance that this will always occur. Investors should be aware that high trading volumes can cause delays in executions. Different firms offer different levels of access and system sophistication. The speed of the Internet service provider used by an investor may also have an effect on order transmittal and execution.
Timing in execution of orders may also be impacted by market volume, order queues at market centres, possible delays in order transmissions by brokers and other system issues. As stated earlier, the system used by a licensed stockbroker is more sophisticated than the system used by an investor. Thus, it might have an effect on the speed of execution. And if an investor is keen on getting a specific quantity at a specific price or intend to trade with large volumes, it is always best to go through your investment advisor directly.
What are the advantages of online trading?
Online trading does not impose a particular strategy for investment. This means that as an investor, you are solely, personally responsible for the success or failure of your own investments. But it also means that you can take whatever approach you deem appropriate without any pressure from a broker. However, it is always recommended that investors consult their advisor and get his views before making an investment decision.
An important part of being able to take personal responsibility for your investments is to be able to carefully control how and when trades are made. Traditionally, you would need to call or visit your broker, sometimes needing to set up a meeting, simply to be able to arrange a trade. By giving you complete access to your investment portfolio through a web portal, online brokers provide you the opportunity to make trades, check prices or make other changes from anywhere around the world.
(To be continued next week)
