Definition of Trading on Internet

Trading on the Internet has become the most popular way to buy and sell stocks, futures, options, bonds and warrants, and at substantial discounts to full service brokers. Today online trading provides comprehensive, independent research, position testing and portfolio maintenance. In addition, Internet trading provides an easy-to-use interface for setting loss limits and exiting trades.

The Breadth of Internet Brokerage

Because Internet trading encompasses many types of trading, it is important to consider how trading is conducted. Internet brokerage firms operate under the rules of the exchange on which the stock, bond or futures trades. Internet trading also takes on trading for penny stocks, mutual funds, day trading, options trading, and FOREX (foreign exchange) and commodity and futures trading.

Qualifications for Internet Brokerage.

Each registered representative must have completed his Series 7 exam--administered by the Financial Industry Regulatory Authority (FINRA)--that qualifies him to answer investment queries and help execute brokerage trades. Firms must be members of the Security Investors Protection Corporation (SIPC), which insures brokerage accounts. Firms must also adhere to the rules and regulations of the Securities and Exchange Commission (SEC) and FINRA.

Day Trading

While different brokerage firms advertise themselves as full-service options specialists, other firms advertise themselves as low-cost providers of stock trades. These are the firms usually catering to day traders. Day trading is one of the most popular investment activities. Day traders buy and sell several stocks each day. In order to reduce margin requirements, the minimum amount of equity a trader needs to trade must be closed by the end of the day.

Full-Service Brokerage

Every major brokerage firm employing brokerage sales staff now offers online trading capability. Nearly every major brokerage offers the same services found with a full-service brokerage firm. Corporate, individual, taxable and retirement accounts are all traded on the Internet. Internet trading platforms allow traders to enter buy and sell points as well as formulas for limiting losses through stop loss control.

Defining the Universe of Internet Trading

Internet trading began as a low-cost trading alternative. Now it is considered the preferred way to trade. This is because the modern platform allows better pretesting of trading strategies, risk control, ability to place limit orders and independent research. Internet trading has put considerably more control in the hands of individual investors and institutional investors while lowering the cost of trading.

References

• SEC: The Internet and Online Trading
• SIPC
• FINRA

Resources

• Day Trading
• Introduction to Day Trading