There are several pros and cons to online stock trading, but most online traders find that the pros outweigh the cons. The key to succeeding in online stock trading is being well informed and knowing how to mitigate your risks. Here are the pros and cons of online trading:
Pros and Cons of Online Trading: The Pros
No Brokers Needed
Years ago, before the digital era, if you wanted to trade on the stock market, you had to hire a personal broker. A broker is someone who is licensed and trained to bid in the stock market on your behalf and explain to you the pros and cons of buying a particular stock, mutual fund or bond. Brokers are professionals who substantially mitigate your risk with investing. However, brokers also create a barrier to entry to the stock market, whereas pretty much anyone can trade online right away. The web service you use to do your online trading serves as a broker to all who use it.
As you can imagine, personal brokers charge high fees. Brokers fees vary greatly depending on their level of expertise and years of experience. However, brokers provide a personalized, client-based service similar to the way many lawyers operate, so fees will be substantial. The better your personal broker is, the more you ll pay. Of the pros and cons, low fees are a huge pro for online investors. Web-based trading platforms charge a mere fraction of what personal brokers charge their clients and online trading can lead to higher returns.
Information and Tools
Most web-based trading platforms give you access to sophisticated, informative tools for trading. With these tools and a lot of self-education, you can make wise investments.
The stock market is ever changing, and with online trading, you can place your bids anytime, anywhere. There is usually some lag time when using a personal broker.
No Financial Minimums
Personal brokers usually prefer to work with clients who have several thousands of dollars to invest. For those of us who do not have that kind of cash lying around, online trading is great. You can start buying penny stocks with less than $100.
Pros and Cons of Online Trading: The Cons
Of the pros and cons to online trading, there are several minor cons that harsh critics of online trading cite, but the main substantial con that you really need to be aware of is the risk that online trading entails. Online trading has largely torn down the barriers to entry for bidding in the stock market. This is both a good and bad thing. Those with no investment experience can get into serious trouble if they leap before they look. The stock market is inherently volatile, and you really need to know what you re doing to avoid losing money on your investments.
Many online traders have taken free classes, read countless books at the library and dedicated hours and hours of their time to learning how to use online trading tools. Some of these people have become highly successful traders and have been able to quit their day jobs in a matter of months. Conversely, many online traders jump in head first, are not web savvy and don t know how to use trading tools. Some of these investors have subsequently lost thousands of dollars in a matter of days. If you re a new investor, spend a lot of time educating yourself to mitigate your risk.
Of the pros and cons of online trading, you can see that the pros can greatly outweigh the cons as long as you know what you re doing and make smart decisions that mitigate your risk.
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