Investing in the stock market always required a middleman, the broker. In the non-digital decades, this used to be a real person, with suit and tie, much like this video explains. Now, this area too has been upgraded by algorithms. It’s a way to bring more power to the masses and let the average person create a portfolio with as little as $100 per month.
Here are a few reasons why an online platform is the best tool to use for beginners and seasoned traders alike.
Convenience
Through online trading, you are no longer confined by office hours or demanding entry barriers like having at least $10,000 to invest. You can do it with some spare change, from the comfort of your own home, at 11 PM.
The downside of this approach is that you can lose control and make some impulsive decisions that you can later regret. A broker’s role is to stop you from rushed decisions and temper your impulses. An online platform could replicate this by employing limits or temporary freezes of the account.
Reduced transaction costs
Human stockbrokers are trained financial experts usually handling large amounts. Of course, they could use the same strategies to invest just $1,000, but that would not make commercial sense for them since the fees would be at most the price of lunch while the hours spent would add to a full-time job. Most large capital investors use stockbrokers for customized advice they might give to a specific investing strategy. For small amounts, an automated algorithm is good enough, and the fees are in the price range of a coffee.
Better liquidity
Online broker platforms let you invest any amount you like, in any stock at any given price. Once the order is fulfilled, the funds appear instantaneously in your account. This is much better than traditional stock exchanges which can take up to a few days to record operations. The advantage of enhanced liquidity is that you can perform day trading and give a higher velocity to your money, getting more profit.
Total transparency
An online platform comes with a user-friendly system for placing orders, keeping track of fees and displaying the portfolio. In a traditional setting, this would require reports, inquiries and would never be up to date and in real time unless the trading activity stops.
Most younger investors expect this kind of information available to them at all times, on their mobiles at the touch of a button.
Education
Online platforms are designed for customers with no specific financial background. The best stock trading accounts to sign up for offer a broad selection of educational tools. In fact, to be successful, every independent investor should take some interest in understanding the stock market, much like a broker. This includes learning about competitors, performing market research and evaluating potential investment opportunities.
The platforms are very intuitive and contain numerous instructional videos and tools. Some even offer demo accounts with mockup money, so that the potential investor can learn in a safe environment.
Robo-advisors
Most online platforms have already implemented or are considering using artificial intelligence to upgrade their services. These systems learn from the trader’s behavior as well as from existing databases of past trades. One the training period is over they can give advice related to potential investments much like a human broker would do. In fact, these could be the missing link between human brokers and online platforms.
Bad news
The only downside of the online environment is that am algorithm still has a hard time understanding the investor from a personal perspective and assessing their real risk acceptance levels, goals and approach.
