Definition of Online Trading
You've just about had it with the high commissions you have been paying for trades made through a traditional broker. You trust your instincts more than your broker's, so the research the company offers is of lesser use to you. These are but two reasons why you are now looking for an online broker.
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Significance
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When they hit the scene in the early 1990s, online brokers were a cut below their more famous parents. They charged much lower commissions but what they passed off as research was often old or inaccurate. Now online brokers can give research that rivals traditional brokers, and their websites are quite user friendly.
Types
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Online brokers tend to attract people of a like age and style of investing. For example, go to the website of T. Rowe Price, and you'll see the company has a particular expertise for people nearing retirement. For example, for about $250, the company will do a comprehensive assessment of your portfolio and make recommendations. That's far less than you would pay a financial planner. On the other hand, if it is research you are looking for, Fidelity website can sell you any of its any mutual funds commission-free. However, Fidelity charges $75 per trade of individual stocks, far more than other online brokers.
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Features
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Many online brokerage firms also have offices where their customers can go for more personal help. Consider Scottrade, TD Ameritrade, or Charles Schwab as examples of these.
Warning
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Online brokers are not for every investor. For example, some investors need the discipline that a traditional broker can provide. Also, many people do not have the time necessary to devote to running a portfolio. Often, the savings inherent to online brokers are not outweighed by the benefits some receive from a traditional broker.
Potential
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Whether the economy is bad or good, the future of online brokerage firms is bright. In a down economy, for example, people are inclined to sell their mutual funds and purchase stock in individual companies, and the reverse is true when the economy is thriving. Add to that the trend shown by many online brokers who are beefing up their investment research capabilities, and you will denote a change from their original business model, action caused by competition. For example, Fidelity offers a level of research that is absent from their more traditional counterparts.
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