The Digital Marketplace for online trading
The arena of online trading offers many advantages and disadvantages to individuals interested in engaging the world's financial markets. The marketplace has evolved over time from an open-outcry auction system to a predominantly digital format.
The modern incarnations of currency, equity and derivatives markets have given people from around the globe the opportunity to participate in what was once limited to the privileged few. All that is needed to enter today's most popular financial venues is risk capital, computing power and internet connectivity.
The Markets
The largest marketplaces in the world conduct the lion's share of their business operations online. Listed below are a few of the most prominent:
Equities: Led by established exchanges and over-the-counter (OTC) entities, the majority of stock trade is conducted online. While traditional financial centers such as the New York Stock Exchange (NYSE) maintain a physical floor, others such as the Euronext rely on an exclusively digital infrastructure.
Currency: By far the largest market in the world, the forex is responsible for upwards of US$5 trillion in value per day. Currency trading on the OTC forex is easily conducted through an online brokerage firm via software trading platform.
Derivatives: Over the past decade, the online trade of futures and options has flourished. Dating back to its origins at the Dojima Rice Exchange, and remaining until the 1990s, the trade of derivative products has been conducted through the open-outcry auction system. Today, the world's largest derivatives markets operate online. The CME Group, Eurex and Intercontinental Exchange (ICE) are the industry leaders.
Whether one is a small retail trader chasing profit within the market, or an institutional player looking to manage a vast portfolio of holdings, online trading is typically the vehicle by which these undertakings are managed.
The Pros Of Online Trading
Although the online trading of financial instruments for profit is commonly viewed as a daunting task, there are several advantages afforded to the individual. It is through these advantages that value-added areas may be identified and incorporated into the trading approach.
The degree of each advantage varies depending upon the specific situation, but the following aspects of online trading represent the upside realised by traders in the digital marketplace:
Market Access
As stated earlier, the prerequisites to begin trading securities online are limited. Risk capital, computing power and internet connectivity are all that's needed to begin. Upon the selection of an online brokerage firm and successful open of a trading account, market access is assured.
Limited Transaction Costs
In the 1980s, the cost of making a trade on the NYSE ranged anywhere from £50 to £1,000s according to the size and type of order desired.[1] Today, discount online equities brokers commonly offer trade execution for under £10. Online currency and futures brokers have followed suit with greatly reduced trade-related commissions and fees.
Liquidity
Online trading has increased market participation exponentially, with an abundance of traders willing to buy or sell at any given price. In turn, bid/ask spreads have tightened, slippage is more readily quantified and the process of entering and exiting an open position within the market has been streamlined.
Availability Of Leverage
The use of financial leverage has always been an integral part of trading securities. Online trading has increased its availability. For instance, forex brokerage firms commonly enable clients to implement upwards of 100:1 leverage on the account balance, making larger returns possible.
Opportunity
Traditional trading schedules have been eliminated by the ascension of online trading. While it is true that optimal trading hours are relatively constant, most markets now function on a 24 hour, 5 day per week basis. For instance, the CME Globex is open from Sunday afternoon to Friday afternoon, taking a daily 45-minute break for settlement. The forex remains open 24/5 without any cease in trading. These extended market hours create many more trading opportunities for the individuals that pursue them.
The modern incarnations of currency, equity and derivatives markets have given people from around the globe the opportunity to participate in what was once limited to the privileged few. All that is needed to enter today's most popular financial venues is risk capital, computing power and internet connectivity.
The Markets
The largest marketplaces in the world conduct the lion's share of their business operations online. Listed below are a few of the most prominent:
Equities: Led by established exchanges and over-the-counter (OTC) entities, the majority of stock trade is conducted online. While traditional financial centers such as the New York Stock Exchange (NYSE) maintain a physical floor, others such as the Euronext rely on an exclusively digital infrastructure.
Currency: By far the largest market in the world, the forex is responsible for upwards of US$5 trillion in value per day. Currency trading on the OTC forex is easily conducted through an online brokerage firm via software trading platform.
Derivatives: Over the past decade, the online trade of futures and options has flourished. Dating back to its origins at the Dojima Rice Exchange, and remaining until the 1990s, the trade of derivative products has been conducted through the open-outcry auction system. Today, the world's largest derivatives markets operate online. The CME Group, Eurex and Intercontinental Exchange (ICE) are the industry leaders.
Whether one is a small retail trader chasing profit within the market, or an institutional player looking to manage a vast portfolio of holdings, online trading is typically the vehicle by which these undertakings are managed.
The Pros Of Online Trading
Although the online trading of financial instruments for profit is commonly viewed as a daunting task, there are several advantages afforded to the individual. It is through these advantages that value-added areas may be identified and incorporated into the trading approach.
The degree of each advantage varies depending upon the specific situation, but the following aspects of online trading represent the upside realised by traders in the digital marketplace:
Market Access
As stated earlier, the prerequisites to begin trading securities online are limited. Risk capital, computing power and internet connectivity are all that's needed to begin. Upon the selection of an online brokerage firm and successful open of a trading account, market access is assured.
Limited Transaction Costs
In the 1980s, the cost of making a trade on the NYSE ranged anywhere from £50 to £1,000s according to the size and type of order desired.[1] Today, discount online equities brokers commonly offer trade execution for under £10. Online currency and futures brokers have followed suit with greatly reduced trade-related commissions and fees.
Liquidity
Online trading has increased market participation exponentially, with an abundance of traders willing to buy or sell at any given price. In turn, bid/ask spreads have tightened, slippage is more readily quantified and the process of entering and exiting an open position within the market has been streamlined.
Availability Of Leverage
The use of financial leverage has always been an integral part of trading securities. Online trading has increased its availability. For instance, forex brokerage firms commonly enable clients to implement upwards of 100:1 leverage on the account balance, making larger returns possible.
Opportunity
Traditional trading schedules have been eliminated by the ascension of online trading. While it is true that optimal trading hours are relatively constant, most markets now function on a 24 hour, 5 day per week basis. For instance, the CME Globex is open from Sunday afternoon to Friday afternoon, taking a daily 45-minute break for settlement. The forex remains open 24/5 without any cease in trading. These extended market hours create many more trading opportunities for the individuals that pursue them.