Online trading can be fast and expensive. That means you can place trades from the comfort of your home without ever having to speak to anyone. On the other hand, the speed and efficiency of online trading platforms rely entirely on the supporting technological infrastructure, which could malfunction at very crucial moments.
In this article, we will discuss the most common problems that one can encounter when online trading. By knowing what these problems are, you will easily get better prepared for when they happen to you.
Online trading platforms are only as good as their underlying servers and software. High volumes on volatile trading days can slow down the processing speeds and even the information flow. It’s possible for you to incur huge losses if you couldn’t place the required buy and sell orders, especially in the fast-moving markets.
Software bugs can also lead to delays in obtaining price quotes and information on the order’s status. This can also lead to trading losses since you might enter the orders based on incorrect price quotes or delayed order-execution reports. Investors depend on the internet and cellular service providers for researching information and placing trades. If these internet access points malfunctioned, you would not be able to receive timely information or place crucial trades.
Online brokers usually sport lean cost structure, which enables them to offer discounts on commissions. You might have to wait a long time to place a phone trade, especially in times of extreme market volatility. This is because trained and certified traders cost money.
You might need to place important trades over the phone if your online portal malfunctions or if your internet connection is down. Additionally, you might not be able to place certain types of orders over the phone, like those of spread roders that involve options.
Brokers might also put higher-net-worth clients and active traders on top priority, and this could prolong the wait times for average investors. Administrative actions, such as exchanging funds between accounts or transferring positions between brokerages, could take a long time and they can limit trading opportunities.
Online trading means you are your own investment manager. However, this kind of independence come at a price. You don’t have the advantage of professional feedback loop like a reliable sounding board for your investment decisions.
Online brokers usually do not provide buy-sell recommendations. You have to set aside some time for research, such as reviewing financial statements on corporate investor relations websites and price charts on financial websites.
You can fall back on mutual funds, which offer professional management and diversification, if you do not have the time for sufficient due diligence.
You should have a backup connection to the internet at your workplace or at a public library in case the service provider you have is encountering a problem. Never call the discount broker during regular hours for administrative actions, like transferring positions between accounts.
Avoid placing market orders in fast-moving markets since these orders could be filled at unfavorable prices. Review publicly available information on different brokers, like comments on service levels and features, before opening an online account.