Online trading represents all trading activity done on the internet. As a trader, you buy or sell financial assets on a trading platform that is offered by a brokerage or a bank. Whatever decision you make is transferred instantly via the trading platform to the broker and executed immediately. This is why an active internet connection is necessary (hence the name ONLINE trading).
Ever since the 1990s, online trading has been growing exponentially due to the availability and ever-increasing affordability of high-speed computers and internet connections:
- Internet: Nearly 60% of the global population are active internet users as of January 2020, and the global online penetration rate is growing by the year
- Computers: Moore’s law suggests that a computer’s processing power can double every two years. This performance has enabled investors to execute their trades from the comfort of their homes
Thanks to these two rising trends, there has been a massive growth of online trading worldwide. More and more people are now able to trade online, and it seems that the number of traders will keep on expanding given the fact that currently, there are over 1.7 billion mobile phone users who are excluded from the financial system. Online trading can offer many more benefits when compared to the traditional, pre-internet era of trading.
Advantages of Online Trading
Before the use of the internet, Investors had to handle all of their trading operations via mail, telephone or fax machines. Buying or selling decisions had to be made via the telephone with their broker. This was slow and inefficient as brokers needed to confirm all transaction details like – price, quantity, length of trade, type of trade, exit price and much more.
Not only has the ease of trading drastically improved, but the simplicity and quality of tools, instruments, and methods of analysis. In the pre-internet era, investors would need to construct charts of paper. Even as early computers became available, traders had to manually calculate many values on their own.
Nowadays online trading platforms allow a wide range of order types. All of them can be set up manually via the brokerage of your choice. This is hugely beneficial because it allows traders to prepare a precise trading plan with the exact buy, sell and exit-entry orders.
Another benefit is in no restrictions on how you can trade. Traders can select any trading strategy they prefer. When trading online, you can choose any of these styles:
- Scalping – short term trading
- Intra-day trading
- Intra-week trading
- Swing trading
- Long-term trading
Many of these trading styles seemed intangible just a few decades ago when a call to the broker was still needed.
Thanks to online trading, more financial instruments are accessible to traders than ever before. Now you can execute trades on:
- Forex (Foreign Exchange) market -Trade currency pairs like the EUR/USD, USD/GBP, and USD/JPY
- CFDs on Commodities – Trade CFDs on commodities like Gold, Crude Oil, and energy
- CFDs on Indices – Trade CFDs on the DAX30, NASDAQ, and others
- CFDs on Shares – Trade CFDs on the stocks, like Apple, Tesla, and McDonald’s
- ETFs – Trade collection of securities like stocks, bonds, or options
- Bond CFDs – Trade on the fluctuations in the value of corporate or government bonds
- Cryptocurrency CFDs – Trade based on the price movements of Bitcoin, Ethereum, Litecoin
As you can see, there are many assets you can trade and analyze. Forex market is one of the more popular choices for beginners. It consists of many currency pairs including the major ones (Forex Majors) – the EUR/USD currency pair, the GBP/USD currency pair, and the USD/JPY currency pair. Then there are Forex Minors – the EUR/JPY currency pair, the GBP/AUD currency pair, and the GBP/JPY currency pair.
Furthermore, there are also Exotic Pairs such as the EUR/NOK currency pair, the NZD/SGD currency pair, and the USD/HUF currency pair. Of course, there are many more pairs than just these, but new traders should limit themselves to just a few basic ones in the beginning.
How to choose an online trading platform
As there are many options to choose from, new traders should focus on selecting a trading platform that can offer a simple way to trade and access the financial market. In addition to executing trade orders, you will want your platform of choice to be able to do other tasks as well. Here is a list of desirable platform features:
- Reliability and stability of the platform
- Managing setups
- Performing chart analysis
- Using indicators
- Changing or adding instruments for analysis
- Monitoring the news
- Keeping track of open and closed trades
- Access to support and discussion forums and communities
As you can plainly see, it is not just about opening and closing trade orders. A good trading platform mush offers much more than that.
Another important thing to look out for is a thriving community. By making sure of this, you will gain not only valuable tutorials but also technical troubleshooting and support. In this sense, the more popular the platform is, the larger and more helpful the community will be.
Some trading platforms are based on open code and they offer strong independent development of expert advisors and plugins. All of this can be helpful to skillful traders who want to improve their trading strategy. Some are found for free within the communities, while others are developed by experts and sold at a price.
It is essential to review a platform before committing to it. You need to make sure it can offer what you need to make your trading experience as smooth as possible.
Two popular examples of online trading platforms that offer a rich set of features are MetaTrader 4 (MT4) and MetaTrader 5 (MT5). These platforms are especially useful for Forex and CFD trading. These platforms have built a reputation for being very user-friendly.
How to Choose an Online Trading Broker
Research prior to committing to a specific broker should be a top priority. Making the right selection from the beginning can go a long way, and It can definitely improve a trader’s odds of being successful. With that in mind, there are a number of elements to consider:
- Is the broker reputable and regulated?
- Does the broker offer top-performing and easy to use the software?
- Do they offer a wide range of tradable assets?
- Do they offer support, education, and training?
- What are the costs of trading?
What you need to open an account
Opening a brokerage account is an easy process that should take you no more than 10 minutes given that you have all your information at the ready. In addition to the basic information like your name and address, a brokerage will most commonly ask you for the following:
- Bank account: You will need to add funds to your account and the easiest way to do it is to link it with your checking or savings account. Transferring money usually takes a day or two.
- Social Security number: Your SSN is important for making sure your tax forms are in order.
- Driver’s license or state ID: If the brokerage cannot confirm your identity, you may need to provide a picture of your driver’s license or state ID.