Trade Share Online

Details

Category: Online Trade

The act of placing buy/sell orders for financial securities and/or currencies with the use of a brokerage's internet-based proprietary trading platforms. The use of online trading increased dramatically in the mid- too late-'90s with the introduction of affordable high-speed computers and internet connections. Buying and selling securities using the Internet or broker-provided proprietary software that works through the Internet. Online trading is distinguished from Wireless Trading, a nascent area of service where brokerage customers can trade via cell phones, pagers, and hand-held organizers.

The use of online trades has increased the number of discount brokerages because internet trading allows many brokers to further cut costs and part of the savings can be passed on to customers in the form of lower commissions. Another benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format. In the past, investors had to call up their brokers and place an order on the telephone. The broker would then enter the order in their system which was linked to trading floors and exchanges. With the advent of the internet, investors can now enter orders directly online or even trade with other investors via electronic communication networks (ECN). Some orders entered online are still routed through the broker allowing agents to approve or monitor the trades. This step assists in the protection of both the client and brokerage firm from unlawful or incorrect trades which could affect the client’s portfolio or the broker’s license. Online brokers are most often referred to as discount brokers, due to their lower fees as opposed to full service brokers who also give advice to clients.

Before choosing to invest or trade online it is important for investors to research the online brokers that they plan to employ, assuring that they are licensed within their state or provincial jurisdiction. This step will help to protect investors from falling victim to unlawful or illegal securities schemes (e.g. Boiler Room scams). The USA Federal Government provides practical tips to avoid investment scams via their On Guard Online website. One tip is "Don't believe everything you read in online newsletters, investing blogs, or bulletin boards. Fraud artists often float false information and "hot tips" as part of their efforts to rip-off investors or manipulate the market for a particular security." They also advise that one "Turn to unbiased sources when researching investments, such as the U.S. Securities and Exchange Commission (via their EDGAR database), your state securities regulator, and securities industry self-regulatory organizations (including the Financial Industry Regulatory Authority (FINRA), Amex, and Nasdaq).