While trading online through a discount broker has been favored over trading with a full-service broker, most investors don’t realize the full list of risks.

There are two ways to cut down on your costs. For one, switching to a discount stock broker entails lower commissions. For two, switching to a discount broker online as opposed to over the telephone is even cheaper.

According to a survey done by TSI Wealth Daily Advice, seventy-five percent of their site visitors responded to the question of whether they trust the advice they receive from their stockbroker with “I trade online through a discount broker.”

Know the risks 

There are many dangers of online trading that are inconspicuous to the investors’ eyes.

The main one being deception. The lower costs and higher speeds of online trading render conservative investors susceptible to overtrading. That means you might end up selling your best picks when they are just getting started.

Further, the efficiency of online trading may lead conservative investors to take up short-term trading or day trading. Again, there’s a large amount of randomness in short-term stock-price fluctuations that are unavoidable.

Frequent trading may also lead to lower-quality, thinly traded stocks. The bid and ask spreads of many of these investments could be too wide that the share price will have to increase significantly before any money could be made on a sale.

You are on your own

The clerk who takes your online order isn’t obligated and definitely won’t feel emotionally compelled to warn you if they see you’re about to do something you’ll regret. There is no guidance or investment advice while entering trades on a discount broker’s website.

Quality over quantity 

In the end, the efficient way to cut commissions is by sticking to high-quality investments over high-quantity. Further, it is important to focus on well-established companies that suit your portfolio for the long-term. So, before you switch to a discount brokerage, ask yourself this: “Am I able to single out a selection of investments while sustaining investment quality and diversification?” If not, you may be better off with a full-service stockbroker.

Featured Image: depositphotos/manczurov