The popularity of digital trading is on the rise, and the trend is not going away anytime soon. According to research, more and more people are signing up with an online trading service every day. According to Statista, in the US alone, more than 14 million households are in one or two digital trading platforms. Find more info here.
Digital trading means that the trader makes all the decisions alone. It’s different from using a stockbroker who provides all the input and advice. It’s up to you to make the right decisions if you are going to make any money trading online. However, no matter how careful or diligent you are, there will always be a risk. The following is an outline of some of the advantages and disadvantages of digital trading.
#1. Lower fees
One of the significant benefits of digital trading is that it reduces the transaction costs and high fees that are often associated with the traditional brick and mortar brokerage firms. When you don’t need a broker and do everything by yourself, you get to save a lot of money that you can use elsewhere.
#2. Guaranteed market access
When it comes to trading online, the only prerequisites you need are risk capital, computing power, and a stable internet connection. After that, all you need is to select an online brokerage firm, open a trading account, and enjoy unlimited market access.
#3. High liquidity
The power of having traders buy and sell at any given price cannot be underestimated, and that’s what digital trading is all about. This has increased market participation exponentially. Now bid/ask spreads have tightened while the slippage is more quantified. All this has enabled the process of entering and exiting an open position more flawless within the market.
Disadvantages of digital trading
#1. It’s easy to get immersed in the technology
Trading online makes everything virtual. You don’t have a broker, and it’s just you and the digital platform. If you are a beginner, it’s easy to forget that you are using real money, especially with all the technology involved. If you are not careful, you can make massive losses.
#2. Can be addictive
Online traders can experience the same feeling that gamblers experience, especially when they trade for a long time. According to a recent study, online trading can have the same addictive behaviors as betting online. The study showed that some investors opt to go with short term trading strategies that are used to invest in risky stocks that provide traders with the potential of a higher gain but also significant losses. The structure between gambling and trading is quite similar.
Doing things online is always subject to scams and outright frauds, and it also applies to digital trading. There are endless notions of ‘get rich quick’ that only use negligent analysis and market manipulation to the dismay of unsuspecting online traders.
Online trading has an extensive list of advantages and disadvantages, and we can only cover a few of them. It’s clear that the digital market provides a wealth of opportunities and poses some unique risks. It all comes down to how you approach digital trading as an individual taking into consideration all the factors involved.