"Pitfalls Of Internet Trading"

The Vast Internet Trading Market

"Pitfalls Of Internet Trading" The internet has brought the speed, power, and wealth of possibilities of internet trading right into our living rooms. The online trading craze has brought the power of day trading to a whole new level and never before has so much access and opportunity been possible.

The trend caught on like wildfire and spread throughout fledgling internet communities and grew into a basic of acceptable trading strategy within a few short years. The protocol for day trading had changed, and while there was a small percentage of die hard brokerage buyers, most people grew to love the advancements. They loved the advancements so much that a lot of people never slowed down to discover the pitfalls of internet trading until after they had lost large sums of money.

Internet trading had developed wealth for some people in a very short amount of time while for others who leaped before looking it proved to be their greatest downfall. Just like everything else in history, should you choose to not learn from it then you are condemned to repeat it. Learning the "pitfalls of internet trading" from the mistake of others is like paying attention in history class.

Fast Trades "Pitfalls Of Internet Trading"

The internet has brought about an era of lightening fast trades. The speed of which trades can be executed is actually misleading. Some people believe that because the speed of executed trades has dramatically increased that there is a magical formula that means your mouse cursor now has the power to buy and sell stocks on an immediate basis. This is not an accurate overview of the speed of executed trades.

Your mouse clicks to an order that is still connected to a broker. The speed of executed trades hasn’t really increased, it’s the speed in which we communicate with brokers that has increased. The broker receives you order immediately and then he runs about doing his job which is finding you the absolute best price for your order in the shortest amount of time possible. There is still time for the market to fluctuate during this time, sometimes even drastically depending on what you’re trading.

To help prevent error related to the speed of executed trades, it is recommended that you use a limit order to protect yourself from loss while your broker is running about doing his job. A limit order limits the cost that your broker is permitted to buy your stock so that any fluctuations on the market can not compensate for your original decision.

Low Commissions "Pitfalls Of Internet Trading"

The internet revolution has also changed how much we compensate our brokers. We have ultimately made their jobs easier and thus an internet broker can expect his commissions to decline. At the same time he is capable of executing more trades on his clients’ behalf so he has the opportunity to make more money than before.

What some people fail to realize is that there is still a commission. Since you are still requesting a broker fulfill your needs he still gets his share. The low commission structure of online brokering does contribute to the benefits of online trading, but beware when choosing a broker that the low commission structure doesn’t interfere with the broker’s ability to provide a good service for you.

Not all brokers were happy with the notion of a lowered commission structure for online trades. Just like anyone else trying to make a living, brokers are busy chasing the big fish and often leave the little fish hanging out to dry. While it is human nature to attempt to earn the most money possible for your time, the lower commission structure of internet trading has led to poorer service for the small investor in some firms.

Other firms however, seem to understand there is great potential for remarkable profits even with the lower commission structure. Where else can you pause once an hour, gather up several small investor trades, spend ten minutes executing the trades and then return to the larger investors’ needs. These small commissions can add thousand of dollars to a weekly commission check.

Specialty Brokers "Pitfalls Of Internet Trading"

Once upon a time, a brokerage firm could choose its specialty and sometimes even land higher commissions based on their trading specialty. Online trading has led to remarkable competition among firms and no longer do day traders really utilize a specialty. Most investors are looking for the convenience of executing all their trades with one broker instead of carrying different accounts with various brokers for various trades.

Now there are numerous commodities brokers executing forex trades and forex traders who are trying to trade penny stocks. In the beginning of the internet revolution of online trading, specialty brokers who were trading in everything without being properly equipped were costing their clients quite a bit of money. Over the years training has become much more intensive and most brokers are no longer interested in carrying a specialty. Use caution when finding an internet broker. While a specialty broker may very well come in handy if the only thing you are interested in trading are penny stocks, however over time most investors want at least a little diversity in their portfolio.

Specialty brokers still have their place among internet trading. They can be a wonderful asset to a company who want their clients’ special needs addressed by an expert. Most trading firms do not restrict their specialty brokers to just their specialty.
There are a few firms who carry only specialty brokers. In these firms, the specialty brokers are restricted to their specialty and any orders that come in are divided up among the specialty brokers in order to maximize their talents. This idea is quite effective although these firms lose time in their rate of execution.

Brokerage Firms "Pitfalls Of Internet Trading"

Choosing a brokerage firm does not have to be an insurmountable achievement. A little bit of homework can determine whether an online brokerage firm can handle your needs. Asking a few basic questions can go a long way in determining whether an online brokerage firm is what you are looking for.

We already covered the pros and cons of specialty brokers. Understanding your own financial goals will help to determine whether you are interested in trading with a specialty broker or not. If the only stock that interests you is commodities then you may want to choose a specialty broker. If you want something more diversified then you probably want to go with a firm that requires a more rounded education from their brokers.

When comparing commission rates remember that the lowest is not always the best. While there is something to be said for you get what you pay for, find out what it is you are getting when you are paying. Are the commissions flat rates or are they based on the size of your trade? A struggling firm may suddenly have a commission “sale” and drop their commissions to nothing for a period of time. Use your own discretion before deciding this is a good opportunity. Look at their trading history. Is this just a promotion to get them over a hump or have they been continuously struggling?

Read the fine print when it comes to the firm’s policy on executing enter and cancel orders. A bad policy is bound to cost you money. Read the fine print on the firm’s policies on broker mistakes, web site crashes, and of course, margin accounts.

How accurate is the information you are receiving either via e-mail or ticker bar? Are the stocks quotes in real time or do they have a delay? Does the broker send blanket e-mail notifications (most do) or are they tailored to the type of investments you are interested in?

The basic answers to these questions can determine whether a firm is right for you. Remember that you will most likely never talk to an actual person so all of this information should be readily available right on the website. Online trading does not offer the personal touch of a traditional brokerage firm. Don’t expect phone calls from your broker to discuss your portfolio. If you are uncomfortable being a faceless number instead of a unique investor, online trading is not something you are likely to be satisfied with.

Online trading has its distinct advantages and disadvantages. Most people who transition from a tradition broker to the convenience and speed of online trading are quite happy with the principle even if they find themselves dissatisfied with the firm. You can eliminate the disappointing firm experience by doing your share of due diligence before proceeding.

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