Benefits outweigh the fading concerns with online trading.
The world is constantly changing, and how we interact has changed in so many ways in the past few years we don’t fully think about it. For instance, traditional telephone landlines are dying out as most communications are now made on mobile devices.
Sure, we’re still using phones to talk, but they can do so much more. Likewise, how we invest our money has also changed, with many investors switching to online trading.
There are plenty of reasons for this shift, given the benefits of online trading. As long as you know the basics of what a stock is and how to find a stock ticker, you can enter an order and make a trade in a few clicks.
That’s a far cry from the age of the traditional broker, where you had to call up a human being, explain what you want to do, and wait for them to do that. The age of the broker as a middleman is changing heavily as a result. And, without that middleman in the way, trades can be even more cheap. We’ve already seen a number of brokerage firms make the switch from low commissions on trades to zero commissions!
But there are other reasons as well to make the switch to online trading. If you’ve ever played phone tag with a broker—and let’s be honest, that seems to happen a lot when you want to get out of a poorly-performing trade—you know that there can be a significant time delay.
And what do investors get for that hassle? Fat fees and commissions. While commission rates were set until the 1970’s, and while commission rates have dropped, full-service brokerage firms (i.e., firms with a human you have to talk to), are far pricier than their online counterparts.
What’s more, major brokerage firms have a dirty little secret: They may make trades based on what you want to do that aren’t in your best interest. If a brokerage firm sees a lot of investor interest in a company, they may try to buy up large blocks of shares, and then re-sell them to clients at a slightly higher price.
A broker, for instance, may be told that their firm has a large inventory of shares in a company that they’d like to get rid of. That’s sometimes the unfortunate case when you get a call from your broker touting a hot new stock that could be a good fit for you.
Online-only brokerage firms typically don’t have that kind of back-end trading capability on their own. They’re just there to facilitate trades, and as such don’t have an inventory or make recommendations that may not be in an investor’s best interest. They don’t also do investment banking or other Wall Street type deals on the side where the potential for a conflict of interest arises.
Obviously, the flip side of the online trading revolution is that you’re often out there on your own. There’s nobody at your brokerage account to run ideas by. For some, that can be a bit scary, but anyone looking to make the move can at least start an online brokerage account and keep their full-service account until they’ve gotten comfortable making their own trades and seeing the benefits for themselves.
Even then, many online brokerage firms, in the interest of retaining and improving client relations, have started to add increased functionality like free screening tools, investment research, and technical analysis data to help investors make informed decisions while using their platform. With customization tools, today’s online brokerage services can create the best possible experience for a user at a fraction of the cost compared to a full-service broker.
There are even sites now that can compare the prices and services of various online brokers, so that you can find the platform that’s the best fit for you while you get started on this journey.
It’s cheaper. It’s faster. There’s less potential bias. There’s an increasing amount of tradeable securities and data available that was once only accessible to a full-service brokerage account. And it offers you better freedom. That’s why online trading is the way to go. The benefits of online trading are obvious, and why many investors, even those with little interest in trading, have made the switch.
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