Online Broker: The Fast Securities Trading

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Online Broker: The Fast Securities Trading. Floor trading was yesterday; today, investors act online on the stock exchange or various trading venues. The advantages are obvious: everyone can act from their sofa, easily, quickly and often cheaper than “back then”. Online brokers also make this development of trading possible.

An online broker is responsible for the execution of securities orders for customers or investors. In contrast to stockbrokers who act on their behalf, brokers are commissioned by investors. Brokers trade on stock exchanges and other trading venues with securities such as shares, foreign exchange, raw materials and goods.

On behalf of the investor, online brokers invest in order to then sell stocks and binary options at a profit before an expected loss. In return, investors pay a fee for brokerage, known as brokerage. A good broker observes price movements in the markets and reacts accordingly.

Online Broker: The Fast Securities Trading

A broker’s field of activity can be roughly divided into three areas, with additional areas of activity such as consulting:

1.Observation of the global stock market

When trading securities, the broker must always keep an eye on the markets. Ideally, the broker can correctly analyze the respective stock market news and reports that have to be constantly followed and adjust its actions accordingly.

2.Investment in securities

The broker purchases securities on behalf of the investor and monitors the respective prices and developments.

3.Sale of the securities

Acquired securities are resold – in the best case at a profit – if their price threatens to collapse.

Safe deals thanks to online brokers?

There is no general answer to how to secure financial transactions are with an online broker. Trading with securities is basically never associated with such a high level of security as, for example, an investment in savings accounts.

Securities trading is always subject to price fluctuations – prices can rise or fall at any time. The broker’s skills in terms of analysis and responsiveness are required here. Even if it is unlikely, the risk of total loss can never be completely ruled out.

However, there are different levels of risk for securities. Broadly diversified funds, for example, have a lower risk of loss than leverage products or the like.

Consult experts

Find out more about the different types of securities from experts and get detailed advice on security and risks because investments should only be made well informed.

As a rule, you can fill out an optional risk profile when applying for a deposit. In this way you can determine which securities are suitable for you. Good advice is also recommended here.

Some online brokers offer risk profiles that place a particularly high value on security and, for example, exclude certain, riskier types of securities. As a rule, such adjustments to an individual profile are possible at any time and can thus be updated and modified.

Newbies, in particular, should know the risk and never invest all of their assets in stocks or binary options, even if high returns are to be expected. Forward-looking and, to a certain extent, cautious trading is probably the best entry-level option, especially at the beginning.

Always keep the risk in mind

Security should always be the number one concern when it comes to trading securities. The “safety precautions” should always be adjusted before hiring a broker – good advice is the be-all and end-all. Everyone should be aware of the risk, not just about the lucrative returns.

Areas of action

There are plenty of online brokers out there. From direct banks, which also cover this area, to online brokers who specialize exclusively in securities trading, consumers have a wide choice. The best way to get an overview is through extensive internet research.

This principle is not based on trades, so an online broker is not important here either. Depending on the personal risk profile, such a portfolio contains various index funds (short: ETFs). The performance is based on the development of the underlying indices, for example, the DAX.

In some cases, share purchases and sales can also be carried out via the house bank instead of via online brokers. However, this service is not offered by all branch banks. The advantage of trades through your house bank is that you often receive personal advice, while online brokers often only carry out your orders. On the other hand, the costs for securities transactions with branch banks are usually significantly higher than with online brokers. In addition, you are tied to business hours for trades via your house bank, while online brokers can be engaged at any time.

Which trading venues are there?

When comparing brokers, it’s not just about the cost. When choosing a broker, you should also pay attention to which the online broker serves trading venues. This point should correspond to your own needs – if you want to do global stock trading, you can only do so with a broker who offers all the stock exchanges you want. A cheap share portfolio that is only limited to German trading venues offers fewer opportunities for traders.

  • The following stock market indices are particularly important:
  • German share index (DAX), with Germany’s top 30 companies.
  • Dow Jones, investigated on Wall Street.
  • EURO STOXX 50, with 50 large companies in the eurozone.
  • Nikkei Index, determined on the Tokyo Stock Exchange.
  • Xetra, an electronic trading system on the Frankfurt Stock Exchange.
  • Nasdaq, the largest electronic exchange in the United States.

Which Online Broker to Choose?

If you want to be successful in the stock market, you need a reliable online trader who suits your personal requirements. A broker comparison is essential here. It is best to use an online broker comparison, in which you can specify several variables in order to find a broker that meets your individual requirements. What makes a good broker?

How to find the right broker

In addition to seriousness, you should always pay attention to these aspects:

  • Free depot management
  • Low fees per order when planning frequent trades. If a flat-rate order volume is offered, this should roughly correspond to the expected amount of trades.
  • There should be no additional costs for preferred services.
  • There should be a wide selection of tradable securities, funds and trading venues.
  • Account management and costs should be presented completely transparently.

The ultimate goal of any security investment is profit. This should be generated with the help of online brokers. However, profits can be significantly reduced or even amortized if money falls by the wayside for administrative aspects, high transaction costs, custody account fees and other expenses.

In order to find an online broker who suits your preferences and the way you conduct securities trading, you should consider the following questions in the selection and decision-making process:

  • Which securities do I want to trade in?
  • Which trading venues do I want to trade on?
  • Do I invest very actively or do I invest for the long term and without much effort?
  • How high should my average order volume be?
  • How many orders do I execute on average each year?
  • How important are services (telephone advice, etc.) or real-time exchange rates to me?

Suppose you have answered these questions for yourself. In that case, some online brokers will most likely drop out of the selection, for example, because they do not serve the desired trading venues or because they require a minimum volume that your planned orders will most likely not reach.

The Largest Online Brokers

General statements about which online broker is the cheapest are hardly possible. Depending on the respective trading behaviour, an online broker can be cheap for one investor, but it can be associated with high costs for the other.

Below you will find an overview of the 16 largest online brokers (as of September 2015). However, this should only be understood as a rough guide. For example, custody fees can be waived in the first year or from a certain order volume. The same applies to the costs per order, for example, a certain number of orders can be included in the basic price.

Fee models

Before searching for a broker, you should also sound out which fee model is suitable for you and your trading activities. There are fee models with online brokers – and not every model will suit your personal preferences. Several factors can have an impact on costs, including the frequency and volume of the transactions carried out, but also the trading venues that are used.

Review trading history

If you have already been active in securities trading in the past, you should examine your trading history and then calculate which fee model makes the most sense for you.
In principle, test calculations for fictitious trades based on the various fee models can provide information about which model fits your desired trading habits. Three common models are presented below.

Fixed price model

It is probably the simplest fee model that online brokers use. With the fixed price model, a uniform price is charged for each transaction, regardless of the volume traded. For example, a provider may incur trading fees of EUR 5.00 or EUR 10.00 per domestic order.

When trading on over-the-counter sites and trading on foreign exchanges, fixed, but usually higher transaction costs are due, which are also independent of the volume. For example, a flat order fee with an online broker can cost EUR 10.00 for domestic trading and EUR 30.00 for trading on the Japanese stock exchange.

Fee scale

The transaction costs can also be staggered in fixed prices. Some providers charge fixed prices for order volume areas that depend on the order volume. For example, an online broker can charge EUR 10.00 trading fees for an order volume below EUR 2,000, for volumes between EUR 2,000 and EUR 5,000 the fees are EUR 18.90 and so on. As a rule, there is a uniform fixed price for a high order volume, often from 20,000 euros and up.

Percentage of the order volume

Many providers derive the trading fees as a certain percentage of the respective order volume. This is then usually combined with a fixed minimum fee regardless of the volume. Providers can then also set a maximum price, i.e. cap the trading fees for a specified order volume. Example: The online broker charges a trading fee of 0.5 percent per domestic order, but at least EUR 8.90. There is a maximum amount of 50.00 euros per order.

In the next article, we will continue with Open a depot: How to get started, How to buy your first securities, Is it easy to change a depot?, There are no costs for transferring securities accounts, Who is an online broker suitable for? , Deposit with a foreign online broker: makes sense?.

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