Last time, we had a brief go at explaining online trading. We explained how the way people now trade is considerably different from the past. More importantly, we saw how the modern world is actually quite beneficial for the average trader. The world of trading is cheaper, and far more accessible overall. So, then, here are a few more points we did not get to mention last time.
Online trading fees
What are the usual fees that you will see with an online broker? Well, there is sometimes a base-trade fee, one that you pay for every trade you make. The other is the account maintenance fee, making sure your account stays up.
However, these are actually rarer to see brokers do. What most brokers actually do, and how they make the most of their money, is through spreads. This means that a broker gives you an ask and bid price, which will not be the same as the market ask and bid price. Then, accordingly, they will make the difference you pay from the actual price.
Types of accounts
There are two main types of online accounts, cash accounts, and margin accounts. Cash accounts just let you go on using your own money. The margin account lets you basically borrow money from the broker to trade with, along with your own money. This second method lets you theoretically get a much larger profit. Then, all you do is pay back the loan with interest. If you lose money with the loan, you will have to pay them back.
Types of orders
Online trading lets you automatically set certain parameters for all your trades. Here are just a few.
A market order is very simple. You just put an order through, and someone will accept your order price. No tricks here
Limit orders are more interesting. They let you set a price limit, from where the computer will automatically put your trade through. There are a few of these: the stop order, the stop-limit order, and the trailing stop order.