Understanding Online Trading and Brokers


Today, the internet has made almost everything possible by the click of a button. As an investor, this offers you a wide arrange of opportunities to invest your money in without any hassle. One of such activities is online trading.

What exactly is online trading?

To answer this question, let us look at how people trade in shares and stocks. Normally, an investor would hire a broker to do the trading for him or her. This is a physical investment company that you talk to manage your investment as per your instructions. Now, when you do the same thing but through the internet, that becomes online trading. When you take up online trading, your communication with the broker is usually through the web. Given that there is usually limited physical communication, you have to be careful when hiring the broker.

While the term online broker may be thrown here and there in everyday conversations, it is crucial to know who this is.

Just like the normal broker, an online broker is a person or company that is enlisted to buy or sell shares and make any financial investments online as instructed by the investor. People hire these brokers because of their vast knowledge of the financial markets which translates into minimal risks.

How do Brokers Benefit from the trade?

When you hire an online broker, you will have to pay a commission fee for the stocks bought or sold. This is called dealing commission and varies from one online broker to the next one. On the other hand, some prefer an administrative fee that is paid either quarterly or annually regardless of the shares traded.

Since an online broker will be responsible for your investment, you must take precautions when selecting one to avoid being duped. Just like other professions, there are people out there who are only after your money, and thus reputation of the broker is a critical aspect to consider when choosing one.