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Trading Online or Not? What’s in it for the investor?
04 Apr 2016

The world of investments and finance is in constant evolution. Although market principles remain steadfast, the sector readily responds to change and has a proven track record to be an early adopter of new technology.

One of the important changes that opened up investment  in shares of listed companies to the general public was the privatisation projects which enabled and encouraged ordinary people to invest in the stock market; which until then had been  accessible only to  the affluent.

Notwithstanding these changes, until the recent past, there was only one way to trade or invest in the stock market, and that was through the physical interaction with a stockbroker.  The increased use of the telephone, telex and fax machines made the communication process simpler but did not change the practice of having a middle man in order to gain access the market.  The necessity of human intervention meant that transaction costs remained relatively high, particularly for the smaller investor.

Brokerage firms therefore quickly embraced the proliferation of the internet and particularly the exponential growth in the use of mobile devices. They passed on control and the relative cost savings into  the hands (and pockets) of the investor.  Nowadays, individuals who know how to manage their own investments, no longer need to interact with a middle man. They can trade directly online.

The greatest benefit of accessing the stock market via online trading is the drastic reduction in transaction costs.  Advisors and stockbroking firms, through their physical set-up and years of experience offer a very effective way to access the markets. However it is also a costly option, particularly for smaller ticket investments.  They charge brokerage fees, which are up-front charges with a relatively high minimum for their services, nominee fees when holding securities under custody and even take a percentage of any earnings on discretionary portfolios. 

Online trading, on the other hand, is not free, but comparatively inexpensive and with significantly smaller minimum fees, making investments of a smaller size more viable.  That said, online trading platforms do expect their users to trade frequently and in most instances fees are applied after periods of inactivity.

Undeniably, trading online for one’s self, without the assistance of a market expert, does bring with it greater risk both in way of selecting the right investment and also in the execution of the actual trades on the market.  Therefore, the “middle man” does pay a vital role in the chain for the small or inexperienced investor by giving appropriate advice and selecting the most suitable investment. 

Selecting stock wisely, coupled with a timely entry and exit strategy, is the key to building wealth over time. The benefit of lower charges is quickly forgotten as capital is destroyed should a self-purchased speculative investment turns sour.  Self-discipline is therefore very important and prospective users of such online trading platforms should make good use of the free trial periods which allows them to execute dummy trades without forking out any real cash.

Trades are executed through the simple click of a mouse or the even simpler tapping of a finger. Hence, the more knowledgeable investors can really gain full control over their investment decisions.  Furthermore, access to real-time data (usually at a small monthly cost) and the immediate routing of orders on the market is a benefit which is secondary to none.

Online trading platforms are great tools intended for well-informed, frequent investors and definitely not merely an innovative cheap route to the markets for those aspiring to “get rich quickly”.  In essence, it helps, for good or bad, take control of the market investment decisions from the brokers and puts it into the hands of investors.

Published on Engineering Today
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