Popular Online Trading Styles

There are many methods and styles used by online traders to trade. The categorization of these online trading styles can be done using many criteria such as the trading products, trading interval between buying and selling, methods/strategies used for trading, etc.

Based on the product traded, online trading styles include stock trading, options trading, futures trading, commodity trading, forex trading etc. Stock traders trade equities or shares from companies. Option traders trade options, which enable one to buy or sell a right at specific time periods under specific market conditions. Online futures traders and online commodity traders trade contracts; contracts for products like crude oil and natural gas or contracts for treasury notes and bonds. Online forex traders trade currency pairs, they buy one currency and sell another one according to exchange rate changes.

According to the interval between buying and selling of products online traders can be broadly classified in to short-term traders and long-term investors. Usually traders with trading interval less than one year are known as short-term trader and those with trading interval more than one year are known as long-term investors. Short-term investors, forms the majority of active traders, trade products according to short-term trends. They trade products usually according to its merits. Long-term investors trade with long-term goals; they are usually company/industry specialists want to invest in growing fields.

Short-term trading can be further classified in to day trading, swing trading and position trading. Online day trading is the most active type of trading. Day traders’ trading interval does not exceeds one day. They buy and sell products with in seconds, minutes or hours for usually small gains. Day trading eliminates overnight risks. Day trading involves scalpers – those buy and sell large amount of shares/contracts with in seconds or minutes for very small per share gain, and momentum traders – trades according to the trend pattern of specific shares/contracts with in a day.

The buying and selling interval of online swing traders range from few hours to 4 or 5 days. They, like day traders, trade shares/contracts according to slight fluctuations in price, but they are willing to hold their position until the next day. Online swing trading involves overnight risks but have gain percentage higher than that of day trading. Online position traders trade equities/contracts with an interval of days to months. They relay on long-term trends and company performances. They have higher gain percentage and higher risks than online swing traders.

According to the strategies followed online trading can be classified in to Brother-in-law style -traders seek advice from brokers or other traders, Technical trading style- traders use advanced systems to find out trading trends, Economist trading style – traders relay upon economic predictions, Scuttlebutt trading style – trading according to information extracted from brokers or other sources, Value trading style – trading according to merits of individual stocks not to whole market, and Conscious trading style – combination of two or more of above styles to finding right opportunity.

What Is Online Trading and Its Advantages?

What is online trading? It is the process of buying and selling currencies or financial securities through an internet-based brokerage’s trading platform.

Online trading has made possible for the thousands of consumers with internet access to participate in what was once considered the realm of the moneyed and the powerful. With online trading, as long as you have, learnt the currency trading basics, have a reasonable amount of money required to open a trading account and invest in the market you can participate.

In an effort of learning what is online trading, here are some of the reasons why so many are not opting to take their trading online:

1. The biggest advantage that online trading has to offer over other types of trading is that online brokers charge lower commissions. In addition, the larger the amount of money that you trade then the lower the commission charged. Sometimes, depending on the amount of money you are trading, the commission can go as low as 0.01 of this amount. Therefore, you are able to save more money that you could choose to re-invest in the market.

2. Another benefit is that online brokers have no input whatsoever on your trading decision, they buy and sell as per your instructions. In the real world, you do not have such a guarantee. Some brokers have been known to refuse to accept certain trading decisions, which they believe to be flawed.

3. Another advantage is that investors also have at their disposal multiple software programs that they can use to learn some of the currency trading basics, evaluate stock charts, examine real-time stock prices and so on. This will go along way in ensuring that the decision you make will be more likely to result in positive returns.

4. It is well-known that in the world of trading stocks and currencies even the smallest amount of time can impact on the trading profits that you make. Therefore, with online trading, as soon as you see an opportunity, you can take advantage of it almost instantly. However, in the real world, you will probably waste precious time calling your broker, who will then have to call the trader, the trader will give him/her the price, your broker will then call you back with this price and then you make the decision to buy or not to buy.

5. This kind is also notorious for proving to investors the ability to trade in as small or large amounts of money that they want. There is really no limit to what you can trade. However, outside of the internet, most brokerages will have a minimum required trading amount, that is not debatable.

Online Trading Advantages and Disadvantages

Online trading, or direct access trading (DAT), of financial instruments has became very popular in the last five years or so. Now almost all financial instruments are available to trade online including stocks, bonds, futures, options, ETFs, forex currencies and mutual funds. Online trading differs in many things from traditional trading practices and different strategies are needed for profiting from the market.

In traditional trading, trades are executed through a broker via phone or via any other communicating method. The broker assist the trader in the whole trading process; and collect and use information for making better trading decisions. In return of this service they charge commissions on traders, which is often very high. The whole process is usually very slow, taking hours to execute a single trade. Long-term investors who do lesser number of trades are the main beneficiaries.

In online trading, trades are executed through an online trading platform (trading software) provided by the online broker. The broker, through their platform offers the trader access to market data, news, charts and alerts. Day traders who want real-time market data are provided level 1.5, level 2 or level 3 market access. All trading decisions are made by the trader himself with regard to the market information he has. Often traders can trade more than one product, one market and/or one ECN with his single account and software. All trades are executed in (near) real-time. In return of their services online brokers charge trading commissions (which is often very low – discount commission schedules) and software usage fees.

Advantages of online trading include, fully automated trading process which is broker independent, informed decision making and access to advanced trading tools, traders have direct control over their trading portfolio, ability to trade multiple markets and/or products, real-time market data, faster trade execution which is crucial in day trading and swing trading, discount commission rates, choice of routing orders to different market makers or specialists, low capital requirements, high leverage offered by brokers for trading on margin, easy to open account and easy to manage account, and no geographical limits. Online trading favors active traders, who want to make quick and frequent trades, who demand lesser commission rates and who trade in bulk on leverage. But online trading is not here for all traders.

The disadvantages of online trading include, need to fulfill specific activity and account minimums as demanded by the broker, greater risk if trades are done extensively on margin, monthly software usage fees, chances of trading loss because of mechanical/platform failures and need of active speedy internet connection. Online traders are fully responsible for their trading decisions and there will be often no one to help them in this process. The fees involved in trading vary considerably with broker, market, ECN and type of trading account and software. Some online brokers may also charge inactivity fees on traders.