The term electronic trading also known as e-trading is a method of trading securities, foreign exchange or financial derivatives electronically. The information technology is used to bring together the buyers and sellers through electronic trading platform and networks to create a virtual market place such as NASDAQ, NYSE Arca and Globex which are also known as electronic communications networks. The electronic stock trading services allows the users to sign up over the Internet and conduct stock transactions using a purely electronic interface on the web. The best example of widespread electronic trading was on Globex, the CME Group’s electronic trading platform. This electronic trading platform allows users to access a variety of foreign exchange, financial and commodity markets. The first stock exchange that had an electronic component was the NASDAQ index starting in the early 1970 s. Later, by early 2007, many companies like Chicago Mercantile Exchange started creating electronic trading platforms to support the emerging interest in trading within the foreign exchange market. Earlier, before the start of electronic trading, exchange trading would happen on the floor of the exchange.
Advantages of online stock trading
Fully automated trading process: The electronic stock trading is a fully-automated trading process which is broker independent to trade from anywhere.
Traders have direct control: The traders have a direct control over their trading portfolio.
Can trade multiple markets:The online stock trading has the ability to trade multiple markets and products.
Gets real-time stock trading: The online-stock trading can get you real-time stock trading without calling or visiting broker’s office.
Investment in MFs, bonds:It also allows you to make investments in mutual funds, stocks, IPOs and bonds.
Place orders to buy, sell stocks: The electronic stock trading will allow you to place offline orders for buying and selling of stocks.
Possible to indulge in faster trade execution: The electronic stock trading allows an individual in faster trade execution that facilitates day traders in swing trading.
Favors active traders: The online trading favors active traders, who trade in bulk but demands, lesser commission.
Disadvantages of online stock trading
Online trading is risky: The electronic trading can be risky if it is done extensively on margin.
Chances of trading loss: There can also be chances of trading loss in case of mechanical and platforms failure.
Internet connection issue: The online trading can be of disadvantage if the internet connection is slow or the website itself loads very slowly.
You are on your own: You will be responsible for your actions as you will be the one who will decide if it’s a good or bad buy.
Lack of support: The online traders fall short of constant support and suggestion.
How does online trading work?
Initially the personal investors used to place the orders to buy and sell stock through personal brokers. During 1980s, only a few new brokerages allowed their clients to trade in stocks using dial-up services such as CompuServe and Prodigy. Now, today a million of households use electronic trading accounts to easily invest in the stock market with the advent of Internet. The electronic markets use large computer networks to match the buyers and sellers rather than human brokers. Furthermore, large institutional traders like mutual funds and pension funds prefer this method of trading. To handle an investor’s trades, there is a need for a broker. The individuals do not have access to electronic markets. The broker accesses the exchange network and the system finds a buyer or seller depending on the order. The online trading websites provide tools such as news stories, graphs, and historic trends that clients use to research the company of their choice. The on-line trading provides an exchange like a virtual NYSE where stocks can be bought and sold. It is important to select reliable online trading software, online trading portal and online trading platform and website for your online account which plays a key role in your online trading process.
Is electronic trading popular?
The popularity of online trading has grown rapidly in the last decade. In India, the internet based investment activity involves no direct involvement of the broker. In India, there are many leading online platforms of the biggest stock houses like Bombay Stock Exchange and National Stock Exchange. In the last decade, the popularity of online trading has grown quickly in the last decade. It has been found that the total portion of online share trading in India has grown from just 3% of the total turnover in 2003-04 to 16% in 2006-07.
Privacy and security
The issue with online trading is the in-built insecurity of digital information and the Internet. Online investing is safe if your computer is up-to-date and protected by the latest security applications. There is also a possibility of someone accessing your passwords and also stealing your identity.
The popularity of online stock trading is increasing daily as accessing information known only to stockbrokers a few years ago is now at our finger tips.
