Understanding Online Brokerage System

by : Lesley Lyon

Many industries have profited from data exchange over the Internet but they face several impediments when it comes to the actual transfer of physical products. Only with online brokerage industry, transactions occur where "information" is sold as a commodity without the transfer of physical goods. The Internet is accurately the means, which transforms the dynamics of brokerage industry. Within the financial services, Internet trading is the first industry to maximize the Internet's potential and quickly build a substantial customer base.

Online brokerage has gained inconceivable resources through cost-effective access to capital markets across the world. Online brokerage offers ultra high speed and highly convenient information analysis to online traders. The number of household trading stocks online has grown astonishingly making the investor community shift towards online.

In the traditional training system the brokers have been absolute control over a customer's investment choice where the brokers act in two capacities-first the role of a "gate keeper" in which he collects rent from his customer for his accessibility to stock markets. This gives him the brokerage commission irrespective of whether the customer gains or loses in the whole transaction and secondly, as a full service broker in which he acts as an advisor or manager of the client's portfolio.

In an online brokerage system, the two basic factors are the speed and cost and online brokerage aims to simplify online interaction for the investors. Therefore the entire trading circuitry must be linked online. This guarantees a one-stop shop experience to investors when the trading systems are tied in by technology in entirety.

Since in an online brokerage there is no need for any human contact, to control and manage risks the ongoing automated screening is important. The screening includes checking availability of funds or scripts, trading history, trading volumes and payment defaults. This needs online real time access to clients and also to historical data.

Also the trading system should be able to acquire intelligence from every transaction.

While choosing an online broker, it is important to notice the following:

The type of trader: For a person trading often, lowest commission is important and for an occasional trader, a broker offering good customer service is important.

Commission and fees: It should be noticed whether the commission is based on the type or size of the order and there is any additional fees like inactivity fees or closing account fees.

All investment accounts in one place: whether any other trade investments other than stocks can be made like mutual funds or ETF.

Security: It should be double-checked whether the personal information of the trader and his account are secure with the broker. It can also be verified through articles online about the broker to check his genuinity.

Online brokerage industry will continue to grow dramatically which is evident from the increase in the number of investment brokers aiming for an online presence. Therefore, Internet has become the most important distribution channel of the future and online brokerage service is a rapidly growing industry.