Online trading firms, such as discount brokerage, commodity, and forex trading firms, allow investors to buy and sell various investments from home, but also come with greater personal responsibility and risk. Discount brokerage firms charge lower commissions and provide functional trading tools, but do not offer investment guidance. Commodities trading firms allow for the trading of physical commodities and futures, but carry a high potential for loss. Forex trading firms allow for the buying and selling of foreign currency, but require investors to be fully educated and informed about investment decisions.
There are numerous types of online trading firms, including discount brokerage firms, commodity trading firms, and currency or forex trading firms. Each of the online trading companies has one thing in common: they have placed greater personal responsibility in the hands of investors. It is now possible for a person to buy and sell stocks, futures, options, commodities and a wide variety of other types of investments right from their home. While this allows for greater personal freedom, it also creates greater risk.
The type of online trading company that the vast majority of people are most familiar with is a discount brokerage firm. These firms allow for the buying and selling of stocks, mutual funds, and various options contracts. Firms generally charge a small commission – much lower than what would be charged if a trade was placed through a full-service broker – and allow for a surprising amount of functional trading tools, including the ability to sell puts and calls and to place trailing stops or limits on orders so that a stock can be sold automatically. It is important to note that these companies do not provide investment guidance, although many do provide educational materials that an investor can read if they wish. It is also important to note that many of these firms will freeze an investor’s account if he becomes a “pattern day trader” by making too many trades on a daily basis.
Commodities trading companies are another of the online trading companies. These allow for the trading of ownership of physical commodities, such as oil contracts or grain contracts. Futures can also be bought and sold through these trading firms. Trading commodities and especially futures trading tends to be very risky and carries with it a large potential for loss. Investors engaging in this type of trading must be fully educated on all purchases made and the risks involved.
Finally, there are online forex trading companies. These trading companies allow an investor to buy and sell foreign currency. Like trading commodities, forex can be a riskier investment than standard stocks, bonds or mutual funds, so investors again need to ensure they are fully educated and informed about all investment decisions. Also, the forex markets are open 24 hours a day, so investors should be aware that passive forex trading is generally not a good investment decision as regular monitoring of the markets is required.
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