WHAT IS ONLINE BROKERAGE INFORMATION AND TIPS
What is online brokerage Information and tips. Digitization has also revolutionized trading in stocks and other financial products on the stock exchange. Online brokerage allows more and more investors to invest in the financial market with smaller sums of money, take control of their investments and use securities to build up a fortune. We show you what online brokerage means and what actually lies behind the activity of a broker. With online brokerage, customer orders are transmitted digitally and the actual activity of the broker takes place in the background. Since brokers act on behalf of customers, they charge them for individual actions. These fees are also referred to as brokerage or, alternatively, brokerage.
How does online brokerage work?
The counterpart to online brokerage is going to the local bank advisor to develop an investment strategy and instruct the bank to buy certain securities. With personal advice, this process is usually significantly more cost-intensive. These costs must be covered by the expected returns. Therefore, a relatively high investment is required with conventional brokerage. Online brokerage replaces the consultation with an offer of information, which should enable the investor himself to decide on a certain strategy and the purchase of specific securities. The orders (purchases and sales) are also processed via the corresponding online portal. This results in significantly lower costs, which makes online brokerage attractive for small investors. In addition, ambitious or experienced investors who want to pursue investment strategies independently benefit from online brokerage.
What is an online broker? Difference to securities dealers and traders
Securities dealers operate largely independently on the stock exchange with the aim of increasing their available capital. In doing so, you follow a defined strategy based on comprehensive analyzes. Such securities dealers are also known as “traders”. In contrast to brokers, they do not execute orders on behalf of customers, but decide for themselves which trades they execute.
The majority of traders are institutional traders who act on behalf of banks, funds or insurance companies. The respective institution provides the start-up capital and expects an increase in this capital. The smaller part of the traders are private traders who trade with their own capital and generate their own income directly from it. However, this requires the use of a lot of private capital and carries a great risk. Private investors who try to increase their wealth with their savings through securities are not referred to as traders because they do not trade securities full-time and not for the main income. In contrast to securities traders, a securities broker accepts orders from its customers by telephone, fax or via an online platform and forwards the orders to the stock exchange or acquires the securities as a commission business. An online broker accepts orders accordingly via the Internet, i.e. usually via a web portal. As a customer, you do not see much of the actual activity of the broker. You will only receive confirmation of an executed order. The real work of the online broker takes place in the background.
What is a trade?
In the context of the stock exchange, a “trade” is initially the purchase or sale of securities, i.e. stocks or other tradable financial products. While “Order” only describes the order to buy or sell to the broker, the trade is the actual buying process.
A distinction is often made between investing and trading, although this distinction is not particularly clear. An investment is a rather long-term business that speculates on dividends, for example. Trading describes rather short-term transactions that are primarily intended to generate returns through advantageous sales.
Online brokerage vs. offline brokerage – which is cheaper?
Good to know: As a private investor, you do not have your own access to the stock exchange and therefore cannot trade securities directly. So if you want to invest money in stocks, ETFs , mutual funds, or other tradable financial products, you need a broker. Online brokerage is the easiest and cheapest way to have orders processed through brokers and thus to participate in the stock market.
Online brokerage is cheaper than conventional brokerage and enables you to decide on your own securities transactions. For this, however, the advice that a personal financial advisor offers is largely omitted. So you have to familiarize yourself with the topic of securities trading, develop your own investment strategy and implement it yourself. You are then not dependent on the often sales-driven advice of a consultant, but take your investment into your own hands. You alone make the decisions, but you are also responsible for the consequences.
Online brokerage is particularly suitable for small investors with a low budget and for ambitious or experienced investors who want to familiarize themselves with the securities business or have already familiarized themselves with it.
What is a stock portfolio – and why is it necessary for online brokerage?
The word “depot” actually refers to a physical storage room. Gone are the days when shares were certificates printed on paper. That is why a share portfolio in the digital age is an online portal, similar to online banking, in which the current stock of shares is displayed for an account. As a rule, orders for the purchase and sale of shares can also be issued via the securities account. Without their own stock portfolio, investors cannot buy securities. Opening a custody account is therefore mandatory for securities trading, regardless of whether it is short-term trading or long-term investing. Depending on the provider, a deposit can be associated with costs.