Finance

Advantages and Disadvantages of Online Trading

There was a time when the stocks were traded physically at the exchange. With digitalisation, the physical stock trading system was eliminated, and today, every exchange and every share market has an online presence. You can trade online at the convenience of your home without having to worry about the physical transfer of shares. Online trading has made equity investment more approachable, making it easy to enter the markets. You can open an online trading account and use it after completing the KYC formalities. These portals allow you to add and withdraw funds online.

There are certainly many benefits of online trading, and as per the statistics, new user signs up on the online trading platform every day. Most of those go on discount brokerage platforms with minimal brokerage costs. Some people prefer dealing with a relationship manager while trading, and some prefer having more control by creating online trading models. Both trading models have pros and cons, but today, we will focus on online trading. We will discuss all the advantages and disadvantages of online trading in the section below. So, go ahead and check out the details now.

Online Trading

Advantages of Online Trading

  • Avoidance of Brokers – If you dislike dealing with brokers, online trading is the perfect option. With online trading, you would not have to deal with the dealer or broker’s buy and sell calls. The control is in your hand, and no one will question you about your trades. This is one of the best advantages of online trading.
  • Customized Notification – You can set up custom notifications and custom trades. You can set a notification for a price rise or a price fall. Moreover, if you are into intraday trading, you can set up a bracket order. This will help you make profits while minimizing the risk for your trades. You may not get immediate and custom notifications when you work with offline traders.
  • Faster Trade Executions – The online trading platforms enable you to trade faster. Traditionally, the dealer will call you and seek your permission to trade. With online trading, this manual step is removed. You can place an order, and usually, it gets executed immediately. In addition, you can use limit orders to set a trigger for buy or sell.
  • Higher Control – You have all the control when using online trading platforms. You can set up your watch list and even make transactions yourself. Some people are not confident with the trades when the dealer makes it, and if you are among them, you should also opt for online trading. The higher control of your investment can make you feel empowered.
  • Lower Cost – As mentioned earlier, discount brokerage sites have a sudden rise in popularity. These brokers offer you 0 brokerage on many services. So, technically, online trading can reduce the cost of transactions and the cost of investment. This will eventually improve your profits, and you will benefit from it. If you are tired of high brokerage, online trading is for you.
  • Machine Learning and AI – Many online trading platforms have started integrating machine learning and artificial intelligence. These algorithms can crunch a lot of data in milliseconds, which is very useful in predicting the market flow. With so much on offer, online trading can also help you with data-driven investment advice. You can take advantage of all these next-generation tools using online trading.
  • Multiple Platform Accesses – Online trading platforms have different ways by which you can access the tool. You get access to the web browser, mobile app and desktop application. These multiple ways of investment are certainly helpful in staying in sync while you are on the go. With traditional trading services, you only have the option to call and place an order. The versatility offered by online trading is phenomenal.
  • Online Tools – You get access to a huge list of online tools. These include the charting tool. So, if you are into fundamental and technical analysis of stocks, then online trading is perfect for you. With so much data on offer, it becomes the best option to use online trading services. Trend analysis is usually considered a reliable way of making profits in intra-day trading, and you can leverage that using online trading.
  • Protection of Investor Interest – In some cases, it has been noticed that the investment advice of offline dealers is based on their targets, and hence the customer suffers. There is also a possibility of dealer bias when they recommend a stock. To avoid this, online trading is usually the best option as it gives you the decision-making power for your investment.
  • Real-Time Monitoring – Another benefit of online trading is real-time monitoring capabilities. You can check your investment value in real-time, and you can also check that at an individual level. You can check if any stock is offering you dividends in real time.

Disadvantages of Online Trading

  • Addictive – Online trading can be very addictive. You will find yourself staying on the online trading portals from the market opening time to the market closing time. This can impact your personal and professional life. We do not recommend spending so much time on online trading. Online trading can be as addictive as gambling. So, you need to have disciple and primary controls.
  • Ignoring the Risk – You may often ignore the risk associated with the stock. You can end up trading based on your sentiments. In addition, you may even take risky positions based on unsolicited advice. In addition, you may ignore setting up stop-loss, which can lead to a massive loss in a single day.
  • Lack of Customer Support – If you have a relationship with a physical broker, you will have prompt customer support. You don’t have to wait in queues for someone to answer that. However, with online trading, you get access to generalized customer support, and you may have to stay on a long hold before someone answers your call. The response to the support tickets is more generic in the case of online trading.
  • Over Leveraging – Most online platforms offer you leverage, which is also true for your traditional dealer. The problem with online trading is that you may over-leverage or underestimate the risk. Apart from over-leveraging, you may also enter the space of options & futures, which is again a risky proposition.
  • Missing Expert Advise – Most online platforms don’t offer investment advice. The discount brokers have this section missing. In addition, the advice provided by online traders might just be restricted to generic advice which is published for a larger audience. So, if you are looking for frequent expert advice, you should avoid using only online trading systems.
  • Technical Issues – There are times when the online system may have downtime or a system issue. This can be especially problematic when you want to exit the position. Your profits from a position may turn into losses if you cannot exit on time. These technical issues are very rare, but they can occur, and in such cases, there is always a lack of ownership of the loss suffered by the customer.

Final Verdict

There are certainly a lot of benefits of online trading. However, it is a double-edged sword. You need to be careful with online trading, or you may have a huge financial loss. There is a very thin line between gambling and online trading. In our opinion, you may cross the list as soon as you start trading based on sentiments and without proper analysis. With online trading, you get a lot of advantages, like the transaction fee is low, and you can get more control. Since we have listed the advantages and disadvantages of online trading, you can take a call and decide which is better for you.

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Sumit Kumar Yadav has experience analyzing business and finance of big to small companies. Loan, Insurance, Investment data analysis are his key areas.