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5 Important Facts About Online Trading

Thursday, 03 Mar 2011 10:58 AM

The Internet has made investing in stocks, commodity, futures, and forex a lot easier through online trading. Among other benefits, online trading helps you save time and money. The transaction costs are generally lower for online trading and trades are in real time, which may not be the case with traditional physical trading.

All you need for online trading is access to the Internet and an online trading account. You can execute your buy and sell orders at the click of a mouse. However, online trading has its own set of risks attached.

Here are five things you need to know about online trading:

1. First, you need to sign up with a broker providing online trading. You can opt for a full-service or a discount brokerage depending on your trading profile. Charges will be higher for full-service brokerage as there will be various value-added services. A discount brokerage will charge less, but basic online trading services would still be there.
2. Do not be lured by a cheaper deal alone while selecting an online trading service provider. Check the background and opt for a registered authorized entity. Some websites such as Keynote rate online brokerage firms based on their trading tools, customer service, and other factors. It is advisable to select a brokerage offering timely support.
3. Almost all commodity brokers facilitate online commodity trading and there are some online-only ones as well. As the execution of trades is done in real time, you need to be extra careful about orders in online commodity trading. There are greater risks of over-leveraging your position in commodity trading, as compared to stock trading, because of the larger investment size. Therefore, before placing an order, be doubly sure about your risk appetite as the order would be executed immediately in online commodity trading.
4. In online futures trading as well, for both commodity and equity contracts, the risks of over-trading or over-leveraging are higher as compared to cash market online share trading. The reason is again the higher investment size for futures trading, as compared to share trading. You should be careful before placing orders in online futures trading, as trades would be executed in real time. You should opt for a brokerage that has expertise in futures trading.
5. Almost all brokerages provide online forex trading. Forex trading typically means that you buy and sell foreign currencies. As the exchange rates for foreign currencies keep changing, online forex trading allows you to benefit from the real-time rates. Online trading through a forex broker will allow you to trade in any currency of the world on a real-time basis from any part of the world. But, check on the background of the broker for factors like expertise and authorization for forex trading.

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