What is online trading and How it works : Complete Guide


Wealth creation via the financial market has quickly been becoming popular in recent times, and this largely due to the advent of online trading. There have been many comments on online trading, some of which have led to misconceptions and misunderstanding of what online trading is really about. In this article, we aim to clarify the various misunderstandings about online trading. We will reveal all there is to know about this revolution in the financial sector, and you will understand why everyone is buzzing about trading online.  There are several types of online trading, and each and every one of them will be properly scrutinized. You will be exposed to the various intricacies involved in online trading, and they will be broken down to you. You will understand the benefits of online trading, and if you ever want to get into it, we will provide a simple and informative guide on how to go about it. So gear up, as you are in the right place. Let us now examine what online trading is really about.

What is Online Trading

online trading

Online trading is a very simple method of profiting from the financial market. It basically involves you buying, selling, or trading financial instruments – stocks, bonds, indices, options, mutual funds, etc. – all through an online broker. The advent of internet technology and advanced devices have allowed for the rapid rise in the popularity of online trading. Trading transactions can be performed quickly, leading to faster payouts.  Essentially, online trading simplifies the process of trading on the financial market, as there is no need for paperwork or any other lengthy procedure. Online trading platforms allow you deposit your desired capital on a virtual account, as well as perform trades via the same platform, ensuring convenience. Also, these platforms have mobile applications for most operating systems, so you are guaranteed the ability to trade anytime, anywhere.

What Can you Trade

Online trading does not compromise on the wide range of assets that traders can profit from. Most online trading platforms allow their users trade various assets, including commodities, equities, bonds, mutual funds, currencies, etc. This lack of constraint on the assets that can be traded vial these online platforms has encouraged several traders, as they can diversify their risks, as well as earn from a number of assets, not just one.

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Benefits of Online Trading

1. Access to Online Tools: Trading via online platforms allow traders to access to tools that they might not be able to access via offline trades. Many of these online tools provide free analysis as regards trades, helping traders make better optimized trades. For example, some popular online brokers provide their traders with immediate and unrestricted access to interactive investment performance charts.

2. Avoid Brokerage Bias: Online trading ensures that traders can perform their trades without having to worry about brokerage bias. Brokerage bias occurs when brokers provide financial advices that favor the brokers, such as commission for selling certain stocks or financial securities. By trading by yourself, you are sure that your trades are devoid of brokerage bias, and you are not subtly working for someone else.

3. More Control and Flexibility: Trading on online platforms affords traders more control and flexibility over their trade decisions. Given that time is of the essence in trading, it is very pertinent for traders to be able to execute trades whenever they feel like they stand to profit. Traditional offline brokers typically require appointments to setup a trade, however the speed of access to online trading portals guarantees more control over traders’ profits.

4. Monitor Trades in Real Time: With online trading, you can monitor the trades you make in real time. However, in traditional and offline trading, you have to depend on your broker to provide you with updates that might be regular or even irregular. This ability to monitor the market in real time is a very crucial advantage of online trading.

5. Lower Trading Fees: Many online trading platforms offer free accounts, and paid accounts for added value. However, there is still a very significant reduction from the transaction fees and high fees that traditional offline brokers charge. However, with online trading, this is very much reduced, and you are sure to get more than enough value if you ever pay a fee.

6. Low Starting Capital and no Investment limits: In many cases, online trading platforms do not impose a limit on the amount of capital that traders can trade with. Traders can start with as low as $10 on many online trading platforms, and they can go as high up as they want, without any limitations. However, traditional offline brokers often require traders to invest with a high amount of capital before they can use their services.

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Disadvantages of Online Trading

1. Dependent on Internet: This is perhaps the biggest disadvantage of online trading. The fact that you cannot access your trading platform without an internet connection is a setback. So basically, you have to make sure you have stable internet access, so as not to always monitor your trades and avoid losing money on online trading platforms.

2. Easy to Invest too much too fast: There is the possibility of investing too much in a short period of time on online trading platforms. The convenience offered by online trading can pose a threat, in that users will find it easy throwing in all their capital in a short period of time, all because of the ease of doing so.

How to get started with Online Trading

So, you know all there is to know about online trading, but how do you get onboard and profit from this ingenious method of trading? All the basic things required to kick start your online trading career will be properly revealed here. You need not rush into online trading, as one big mistake early can cost you a lot of money in the long run. So, pay rapt attention, as we now proceed to explain the many intricacies involved in starting with online trading.

Step 1: Choose a Broker

This is the first and most important step involved in beginning your online trading career. If you choose a bad broker, your chances might be ruined even before you begin trading. The broker is the platform on which you will carry out your trades. The broker provides you with information about whatever asset you intend on trading. There are several brokers, each with several unique features, so deciding on the best one for you is very key for your long term survival. There are many factors to consider when deciding on the online trading broker to use. Some of these factors are:

How much you plan on investing: The amount of money you plan on investing is very important when considering an online broker. There are investment limits, so you have to select a broker that accommodates your budget.

Fee charged by Broker and your frequency of trading: The fee charged by the broker on each trade is also very important when deciding on an online broker. You would want a broker that does not charge a fee for account inactivity. Your frequency of trading is also related to this, as you would want a low fee per trade if you are going to be making several trades per day.

Access to helpful tools: If you are a newbie, you would want an online trading broker that offers research advice and other tools that will aid your understanding of the financial market. Some online brokers offer free market analysis, and you would want a broker amongst them.

Range of assets allowed to be traded: Different brokers allow traders trade different types of assets. If you specialize in trading currencies, you would not want a broker that only allows you trade stocks. So, you have to consider the range and types of assets that an online broker offers before deciding on them.

Security and Reliability: This is unarguably the most important factor in any online broker. Your online broker must possess a very high security rating, and must guarantee no downtime. You definitely do not want to invest your funds in a platform that will get hacked or experience a security mishap.

Step2 :Open and Fund your account:

After deciding on an online broker, you need to open and fund your account. Basically, there are two types of accounts you need to create, and many online brokers offer both in one package. Firstly, you would need a Demant Account which serves as a bank, and in which all the shares you buy will be deposited, and the shares you sell will be extracted from. Secondly, you would need a Trading Account, from which you would make the actual trades. This is where you direct orders in the financial market. However, you do not need to worry about these accounts, as many brokers take care of the intricacies involved in creating them.

Funding your account is the next step after you must have opened your account. We    advise you start with a small capital and grow it up from there. If you are a newbie, odds     are that you will lose money in your first couple of trades, so starting small will ensure you do not lose significantly. You should always focus on small profit margins and multiple trades, thus diversifying your risk.

Step3: Learn the basics of trading:

After funding your account, you are set to learn the basics of trading in the financial market. You need to learn about various trading strategies, as well as prepare yourself mentally for trading. Mental preparation is as important as technical preparation. Getting hold of your emotions is very key to becoming a successful trader. Also, you need to learn about possible assets you want to trade, and perform various market analysis on them.

Step4: Practice your skills on a simulator:

After learning, you need to practice these skills on a simulator. Many online brokers offer free simulators that allow traders practice before they begin live trading. These demo accounts are important in developing confidence in every trader, and we advise you perform at least 50 trades before deciding on going live.

Step5: You are ready to go live:

After practicing on the demo account, you are ready to begin live trading. You must have garnered ample experience in the demo trades, so you should be well prepared mentally and technically to begin with the live trades. You need to draft a trading plan and set limits for yourself, so as to mitigate your risk. Most importantly, never forget to only trade with as much as you can afford to lose.


It goes without saying that online trading is slowly revolutionizing the financial markets. The fast pace of technological advancement will further spur the revolution that is online trading. The many advantages of this method of trading are glaring. From convenience, to flexibility, to lower trading fees, to speed of executing and settling transactions, the benefits are endless. The future of online trading is very exciting, as crypto currencies and other types of assets have been garnering popularity in recent times. It is only a matter of time before they become available on every online trading platform. The prospect is huge, the market is available. So what are you waiting for? You definitely want to be onboard this financial opportunity.