The Pros and Cons of Online Stock Trading | What to Look for when Investing Online

online stock trading

The sheer convenience of online stock trading often makes it the more attractive choice over brick-and-mortar brokerage firms. E-brokerages allow for trading from any home desktop, and even on-the-go from your smartphone.

They offer a wider variety of investment choices to better diversify your portfolio. Also, many online services set competitive rates to help yield a higher net return on your investment.

Whether over the internet or using a classic in-person brokerage, though, market trading still has its risks. To better grasp what style of trading will work for you, let’s weigh some pros and cons in the different aspects of online stock trading.

PROCheaper

Online trading typically lets you make transactions more cheaply while avoiding other costly fees of their old-school brick-and-mortar counterparts. At online discount brokerages, the average fee for trading stocks and ETFs range between $5-$10, sometimes with even cheaper options available when you hunt for them. The trickle-down effect from overhead costs at offline brokerages means they can rarely compete with the prices of the online competition.

CONOverspending

The temptation to over-trade is greater, simply because all that is required to buy or sell is the push of a button. At least with brick-and-mortar firms, you’re obligated to reflect a bit more on your decisions.

The time necessary to thoroughly research a stock before deciding to buy or sell does not reflect the split-second it takes to click a button. It’s easier to get swept up in fleeting trends and to ultimately put your investment at a higher risk.

PROIncreased autonomy

Since much of your success in stock trading is dependent upon time, having complete control over your investments and being able to buy and sell stocks without delay, can both potentially work to your advantage.

Whereas brick-and-mortar firms often require in-person appointments and potentially lengthy phone calls, online stock trading is immediate and always accessible.

CONLess personal

The world of online trading can be a lonely place. Whereas old-school trading firms offer personal, hands-on consulting and care for your portfolio, with online trading you are more or less left to your own devices. Though there are a plethora of free online resources from which to become a self-taught investor, it can be a slow process in the beginning to get a knack for the market.

PRONo brokerage bias

Not always, but sometimes, a brokerage will tilt its investment choices to suit its own needs, unbeknownst to its customers. A brick-and-mortar brokerage that offers advice regarding stocks and mutual funds based on its biases may not be totally advantageous to the unwitting customer. In this way, a brokerage may be taking advantage of its investors.

CONAddictive

Online stock trading may present the same risks for addiction as online gambling. The rush produced from making a lucrative buy or sell has the potential to turn into a compulsive habit. Prudent trading requires calculated decisions based on research and rational thinking, not feelings.

PROFree online resources

There are many online tools to get the novice investor acquainted with the ins and outs of the market. Some sites even offer no-money trading programs that let the user experience trading with zero financial risk, thereby being able to get firsthand experience while leaving room for error.

Podcasts, tutorial videos, and online support services are also available to get the beginner investor started in the right direction.  

CONTechnological fallibility

Online stock trading, by its very name, requires that you have online access. But Wi-Fi can sometimes be inconsistent. Sometimes you may be far away from internet services completely. Not having an internet connection jeopardizes your ability to monitor and exercise control over your investment portfolio.

Further, computers, websites, and programs, are all susceptible to failure, whether by glitches, hacking, or otherwise. Not that this is always a major concern with the more established online stock brokerages with vetted security systems in place. But it’s something to be cognizant about.

Featured Image: Depositphotos/© Rawpixel

About the author: Josh is currently studying for a Bachelors in Business Management Organizational Studies at Western University, Ontario. He was awarded the Western Continuing Admission Scholarship in 2015. He is scheduled to graduate in 2109. Josh has worked as a business analyst, co-founded Master Badminton, a sporting goods website, and has written financial analysis, stock market updates, and informational articles on investing.