Online vs Offline Stock Brokers

The dawn of a new, Internet dominated era has brought about landmark changes in the way in which we trade. Sophisticated trading technologies have led to the bulk of share trading moving online, allowing a trader in London the flexibility to buy shares in Tokyo, New York or Frankfurt in seconds with nothing more than a few clicks of the mouse.

For offline brokers, this has made it more necessary than ever to embrace technologies and get online, as a vital component to surviving the modern trading environment. While offline brokers aren't rendered completely obsolete by their online counterparts, there are nevertheless a number of key advantages to trading through an account with an online stockbroker.

It's Cheaper to Trade Stocks Online

The overheads of running a live, person-to-person brokerage are vast in comparison with the costs associated with online trading. The trading costs associated with dealing with an offline broker are naturally higher, because they have to cover the wages of the broker handling the telephone transaction, the cost of the phone line, the rent for the broker's workspace, electricity, heating, even sick pay should the broker come down with the cold. To put it bluntly, trading person-to-person is very inefficient and largely cost prohibitive, particularly when its pitched against automated, computer-led trading systems.

As a result, the costs of trading stocks online are marginal in comparison to trading in the offline environment, which means more profit for you from each trade.

Faster Execution

Unlike trading with a face-to-face (or rather, phone-to-phone) broker, trading online is instant, with no lag time while you wait for your broker to pick up the phone and exchange pleasantries. This means you can execute trades when you the price hits your desired threshold, rather than in five minutes time when the share price may have moved yet again, potentially eating in to your trading profits.

Account Transparency

Unlike offline broking accounts, which supply monthly paper statements or give telephone updates on the progress of your portfolio, online trading facilities allow you to see in real time the running balance of your account. This is a vital tool for dynamic trading, and eliminates the guesswork and arithmetic often involved with calculating how your offline broking account is performing.

Knowledge and Data

Online brokers tend to invest heavily in their added-value services for traders, in a bid to differentiate from the crowd. The upshot of this for traders is access to all manner or stats, graphs, charts and information, all of which can be used to inform future trading decisions and analyse stocks before purchase. In the offline world, this level of service is rare, and indeed practically far more difficult for brokers to provide in real-time to their clients.

Heightened Competition

As you will no doubt experience on your travels as a trader, there are a vast number of online stockbrokers to choose from, and they are engaged vigorously in competition with each other for your trading account. As is always the case, high competition means consumers (i.e. traders) will get a better deal, and if you take the time to shop around it shouldn't be too problematic to find a broker with reasonable fees, strong customer support and the infrastructural reliability that's necessary for serious online trading.

A note of caution - low headline rates of commission are not always as low as they might at first appear, and some brokers charge additional fees and rates by the back door. It's not uncommon to be bought in by a ridiculously low transaction fee, only to find that the rate is limited to trading below a certain level or a given number of trades. These can also include administration charges and other added costs which might not a first be transparent, so it pays dividends to make sure you're fully up to speed with exactly what your trading will ultimately cost.

Analysing your trading requirements before you get too involved isn't always easy, particularly for those just starting out in the world of trading, but it is nevertheless essential to make sure you're with the right broker before you get in too deep. Shop around, and read what others have to say about different broking platforms. Above all, try them for yourself with a free demo account, and make sure you invest the time to read the full terms and conditions of your online broker so you know exactly what your costs may be over the longer term.