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November 08, 2013

Advantages and Disadvantages of Online Trading / Direct Access Trading

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Friends, in our last post we have discussed about the introduction of Online Trading and a few details about the online trading in India. In this post we shall discuss the advantages and some disadvantages of online trading.

The benefits enjoyed by an individual investor due to online trading have been summarized below :
  1. Independent decisions due to direct access to the markets : An investor with an internet connection can track stock and commodity prices and take decisions independently without depending on the brokers for market information.
  2. Elimination of the middle man : Investing online gives the investor a sense of control over his wealth. Buying and selling of stock no longer requires another individual to carry it out.
  3. Prevents manipulation by brokers : Most brokers live on commissions, hence their tactics are in their own favor first, the brokerage house next and finally the client. In case of online trading trade transactions are transparent and clear, hence the brokers and financial investors cannot manipulate.
  4. Inexpensive and affordable commission charges : Increased volume of transactions due to online trading has brought down the operational cost to minimum.
  5. Internet as an information superhighway : Information related to stocks, company fundamentals, technical analysis, expert views, market news, etc., which were once only available to licensed brokers, are now at the fingertips of anyone and everyone. 
  6. Diverse range of investment products and choices : Online brokerages are offering more products to the consumer, so as to give the consumer a wider choice.
  7. Speed and accuracy of transaction execution : Speed and accuracy are the two most important features of online transactions.
  8. Security Issues : Given all of the above, clients were skeptical to go online simply because of security reasons.
The disadvantages of online trading include fulfillment of certain conditions for availing online trading account, greater risk if traders are done extensively on margin, unsafe if it is done broadly on margin, fee of online brokers varies monthly software usage fees, chances of trading loss because of mechanical or platform failures and need of active speedy internet connection (which is not possible in rural areas) etc. Similarly, online investors are fully responsible for their trading decisions.

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