What is an Online Broker?
The first step in online trading is getting to know its basics, how it works, and all its technicalities. Potential traders should always research about all the aspects revolving around their prospect career. In this article, we are going to talk about online brokers and their role in online trading.
Online traders create an exchange through trading platforms that are usually provided by online brokers or brokerage companies. These brokers are composed of people who provide trading services for their clients over the internet by acting as the medium of the exchange. They do this by matching orders and do the transaction of buying and selling of financial assets.
Online vs Traditional Brokers
Before the introduction of internet to trading, transactions were made by brokers in person. They physically deliver the financial assets involved in the trade. Nowadays, through the use of the internet, brokers were able to connect with clients online. They provide faster transactions since money can now be sent via the internet and chat rooms and e-mails made real time updates and conversations possible. Thus, cutting down their expenses and also maximizing the client’s profits since they usually take lesser commissions.
That being said, online brokers earn profit through several ways. Some ask for a certain commission depending on how huge the deal is. This is the usual way of how traditional brokers earn profit. Another common way is earning through spreads. The spread is the difference between the ask price and the bid price. For example, if you are trading with EUR/USD and your chart shows that the exchange rate is 1.06. The online broker may quote you with 2 prices, which are 1.06 and 1.09. This means that you have been charged with 3 pips. If you think about it, 0.03 per 1 EUR/USD trade seems to be too low to be called a profit. But trading usually occurs in large volumes. Multiplying the spread with a huge amount can still result with a decent price. And also, online brokers usually handle more than 1 client. You could imagine the huge amount of profit they could earn in just sitting around matching orders!
There are a lot of advantages in transacting through online brokers, but of course, there would be equivalent disadvantages. Of course, the client will less likely see the online broker in person so scams are highly possible. You may have noticed several stories about online trading scams posted in forums and review sites. Knowing this, you should realize by now the importance of research before putting your trust in an online brokerage site. There are numerous feedback and review sites available for you to ensure that the trading site you want to invest upon is secure and trusted.
If you are interested to look for an online broker, read more about how to choose an online broker.
Want to know the qualities to look for in a broker? Read about choosing an online broker.
Trade12 is an online brokerage site that you can be sure that is trustworthy and reliable. There are a lot of trading reviews and feedback available that can attest you to this. Having a lot of bonuses, their flexible spreads, great margins, and the best leverage offered, you can surely have an exceptional trading experience! Register at Trade12 now and enjoy the best trading experience that no other brokerage site can offer!