Over the years, online trading has grown more popular. In India alone, there are reports of more than 2 million online traders including brokers. Also, there are over 15 million online traders in the United States. There are no signs of these numbers coming down as more people continue to embrace online trading.
In reality, the success stories of individuals who have used some popular online trading platforms to achieve financial freedom have attracted more people to key in and start trading. But there are potential risks involved irrespective of how you choose to trade either through online trading brokers or trading yourself. These risks should be carefully analyzed to make a better decision when trading.
In this article, we will discuss some advantages and disadvantages of online trading. We will also look at potential risks that a trader needs to watch out for and steps he can take to keep his investments safe and secured.
Advantages Of Online Trading
Online trading is filled with several benefits to the trader. These benefits can be exploited and put to good use to make more profits. They include,
- Better Control and Flexibility: Online trading has improved the ability of users to gain more control of their trade or stocks. Rather than leaving everything in the hands of online brokers and agents, traders and investors can better manage their trade and investments. They can easily monitor trends and market prices and eventually set their profit margins.
With the many online trading platforms everywhere, investors and traders are surrounded by juicy options that fit their style. The ability for traders to be flexible by adjusting their stop loss and take profit margins has also made online trading easy and better.
- Ability to Have Access To Online Tools: The internet is filled with materials that traders can benefit from. Many online brokers have presented tools that ease trading. These tools might include educational materials and trading tools that when utilize can prove very powerful. These brokers offer lower fees and the cost of products.
A relative cost of a product does not mean that the product Is a bad one. Rather, the presence of competition among brokers has made it easier to access amazing products and information that aid the trader.
- Reduced Brokerage Fee: During the early formation of online trading, the few brokers available had exorbitant fees that discouraged some individuals from investing. Later, more trading platforms came up with better products and services and eventually made most of the sign-up fees come down. Presently, you can sign-up for an account for as low as $0. This has made transaction fees come down and more people can choose the package that suits their pocket.
- Elimination of Brokerage Prejudice: Having the ability to control your trade eliminates the chances of some brokerage prejudice. This prejudice occurs when the broker gives financial advice that only benefits him. This can come in form of advising customers to sell a particular mutual fund or a particular product and receive little commission for doing that. But with your trade fully in your control, such tactics might not work on you.
- Ability to Monitor Your Investments: Online trading affords you the ability to monitor your investments anywhere and anytime. Many trading platforms make it easier for customers to have better control and monitor their investments in real time. Also, your investments can be monitored through your mobile device at any given time.
Disadvantages Of Online Trading
With great advantages come disadvantages too. Investors or traders must be aware of these constraints to make better decisions. Some of these disadvantages include,
- Addictive Trading: Certain successes of some traders might eventually make one become very addicted and want to hit new profit heights. This can because very dangerous to the trader. Just like in some cases where an individual is addicted to gambling, a trader might also become very addicted to trading, losing control of his limits and making careless decisions just to make instant profits.
For example, a day trader or a swing trader might want to make quick profits. This might move him to continue adjusting either the stop loss or take profit margin. Eventually, the quest to make quick wealth might lead to subsequent liquidation of his account. Greed can make a trader lose focus and eventually lose out when he doesn’t follow up with his trading plan.
- No Personal Relationship Between the Broker and Trader: Because it is an online platform, traders are encouraged to do a lot of research before investing. The inability to physically see your broker and address pertinent issues can be a danger in the long run.
- Computer Errors: The computer can be marred with a lot of errors sometimes. These errors can lead to a trader buying stocks due to error. For example, a trader might place a trade and will receive an error message only to try again and realize it went through the first time. Such double trade might affect the trader as he didn’t have the intention of placing a double trade.
A slow internet connection can also contribute to this error of placing a double trade. A slow internet connection can also interrupt a trading session.
Online trading can be filled with a lot of dangers. Some potential risks/dangers that unsuspecting traders might face are,
- Privacy Breach: A privacy breach can happen when a trader’s personal information is collected and used against his will. This can expose the individual to serious security threats and scammers. A privacy breach can lead to an investor losing all his capital or even his portfolio.
- Falling Victim to Scammers and Online Theft: Online theft has been on the increase. Scammers have successfully manipulated some investors and traders into losing most of their investments. It is wise therefore to note some of their tactics and avoid them.
The following are steps to take to keep your trading safe and secure;
- Use Authentic Anti-virus software to protect your system from malware and virus. A good anti-virus can detect unwanted malware and eliminate them from tracking a user’s information. Ensure to keep the software up to date.
- Do Extensive Research on The Trading Platform: Because of the rising case of scammers who pose as agents, it is important to know the kind of platform you want to invest in and also know their modus of operation. It will save you from falling victim.
- Ensure to check the broker’s encryption. A good encryption website such as the SSL (Secure Socket Layer) can help in securing a safe and secured transaction.
- Always invest with a reputable platform. This can keep your mind at ease when you trade with a reputable trading platform.
In as much as there is some level of risk involved when trading online, applying these tips can serve as a protective wall to the trader. Ensure that whatever trade you wish to carry out online Is safe and secure.