Online Trading

Online Trading Courses

Investopedia offers a number of online trading courses to help you become a successful day trader.

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What is Online Trading?

Online trading is simply buying and selling assets through a brokerage's internet-based proprietary trading platforms. The use of online trading increased dramatically in the mid- to late-'90s with the introduction of affordable high-speed computers and internet connections.  Stocks, bonds, mutual funds, ETFs, options, futures, and currencies can all be traded online. Also known as e-trading or self-directed investing.

Traditionally, investors and traders have to call their brokerage firms to make a trade for them. If John wanted to purchase 50 shares of Intel, he would call his broker with a buy order request. The broker would let John know the market price and confirm the purchase order. If the investor is making a limit order, the broker has to confirm the limit price, how long to keep the order open for, what account to purchase the shares in (if John has multiple investment accounts), etc. The investment representative must also confirm the commission costs for making the trade. When all has been established, the broker would place the trade in the system which is linked to trading floors and exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ. The client would receive a trade confirmation by mail and a monthly or quarterly statement of account showing a list of his investments. If John wanted to transfer some cash from his trading account to his checking account, and vice versa, he would also have to call in to make that transaction request.

Today, with the advent of the internet in the digital era, more and more investors are using online trading platforms offered by their brokers for DIY (do-it-yourself) investing. The online trading platforms serve as a hub with multiple tools for the investor or trader. The investor can place buy and sell orders; place market, limit, stop, stop-loss, and stop-limit orders; check the status of an order; view real-time stock quotes; read news on companies; view the list of securities currently held through the dashboard; etc. An investor can also access his or her investment statements, confirmation statements, and investment tax forms using the online system. Most discount brokerages that are affiliated with banks also provide added convenience for their digital clients by linking their bank accounts to their investment accounts. This way, an investor can easily initiate a transfer between accounts held under the same financial institution.

The advent of online trading has reduced costs for both investors and discount brokers. To encourage people to do their investing themselves, brokers have lower commissions for trades placed online than for trades placed over the phone with a representative. It is not uncommon to pay somewhere between $4.95 to $9.99 for an online trade; same trade which would cost about $29.99 if made over the phone. The lower fees have also made the capital markets accessible to a wider range of people who may not have been able to afford the higher commission fees of a personal advisor or over-the-phone trade. As brokers transition into automated trading, they save costs on their ends from hiring fewer human representatives.

Another benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format. When an investor enters an order online, the order is placed in a database which checks for the best price by searching all the market exchanges that trade the stock in the investor's preferred currency. The exchange with the best price matches the buyer with a seller and sends the confirmation to both the buyer’s broker and the seller’s broker. All this is done within seconds of placing a trade, compared to making a phone call which has to go through several confirmation steps before the rep can enter the order.

It is up to an investor or trader to do his due diligence on a broker before opening an online trading account with the company. Before an account is opened, the client will be asked to fill out a questionnaire about his or her investment and financial history to determine what type of trading account is suitable for the client. If the investor has little knowledge about the different types of securities and trading strategies in the financial world, a simple cash account will be opened for him for doing simple buy and sell orders on stocks, mutual funds, bonds, and ETFs. On the other hand, a sophisticated trader who would like to implement various trading techniques will be given a margin account in which he can buy, short, and write securities such as stocks, options, futures, and currencies.

Not all securities are available to be traded online, depending on your broker. Some brokers require that you call them to place a trade on any stocks trading on the pink sheets and select stocks trading over-the-counter. Also, not all brokers facilitate derivatives trading in commodities and currencies through their online platforms. For this reason, it is important that the trader understands what a broker offers before signing up with the trading platform.

There are many ways to become a professional trader. Jesse Livermore famously made and lost billions of (inflation-adjusted) dollars as a self-taught trader relying on instinct, while James Simons has a deep mathematical background that has helped Renaissance Technologies generate 71.8% annual returns between 1994 and mid-2014. Both traders managed to find an edge in the market and exploited it to generate impressive returns.

While online trading has become increasingly competitive, online trading courses have made it easier than ever to learn how to trade. In this article, we will look at the pros and cons of learning to trade o and whether they’re the right fit for you.

Why Learn Trading Online?

Most online trading courses are focused on teaching market mechanics and technical analysis, while others may focus on more technical strategies or specific asset classes. For example, courses may provide a broad overview of technical analysis as well as specific strategies designed for a specific asset class. They help traders quickly get to a point where they’re comfortable developing strategies and executing traders.

Online trading courses often provide a series of text or video lessons to introduce concepts as well as one-on-one or group mentoring to help reinforce those concepts. Live market sessions may also be offered to show the techniques in practice. These features set them apart from other learning formats and make them immensely valuable at maximizing learning with real-time support from experts.

The price of these courses varies widely based on the level of feedback provided and the quality of the course, but traders can generally expect to spend anywhere from $100 to more than $10,000. These figures may seem high on the surface, but in a market where thousands can be lost in just minutes, it’s worth the money to get a good education. The cost is also an ‘investment’ that may help aspiring traders follow through with their goals, as the courses are designed to quickly get someone to a point where they’re comfortable developing strategies and executing trades.

Drawbacks of Online Trading Courses

There are countless ways to learn trading online for aspiring traders to choose from. Some of these companies have been around for decades and taught hundreds of thousands of traders, but others are unscrupulous companies that charge high amounts of money for strategies with little or no substance that promise to make impossible returns.

The high cost of these courses may also be a deterrent for some aspiring traders. Finally, online trading courses can become a crutch for traders if used improperly. For example, many companies providing courses also provide subscription services for “trading signals” using the strategy that they teach. This may be work if the company has a track record of success, but it allows you to avoid the hard part of becoming a successful trader – developing and refining a trading system that works.

The Bottom Line

Online trading courses have made it easier than ever to learn how to trade in an increasingly competitive environment. These courses help traders quickly get up-to-speed with hands-on learning. On the other hand, these courses often cost upwards of $5,000 and there’s no guarantee of success. Traders should carefully assess their long-term goals and budget before diving into a trading course.