In a brokerage firm, the basic operation going on is the trading of securities by which individual investors and traders participate in, and when the trading is performed over an electric network, this procedure is called investing online or online trading. Since the late 1990s, trading and investing has become the custom for individual investors with brokers offering investment services using a wide variety of online trading platforms.
Trading of securities, before the introduction of the Internet, was done with investors placing their orders through a stockbroker, either in person or via telephone, but with the introduction of the brokerage firm system, new trading procedures were observed, such as holding trading floors and exchanges. Significant growth for trade investment was experienced when K. Aufhauser & Company, in August 1994, became the first brokerage firm to offer trading via its online investing company, because investors could now enter their orders directly online or can trade with other investors via electronic communication networks or some online orders are routed through brokers, allowing agents to approve or monitor the trades. By still routing online orders through brokers, this process helps protect both the client and brokerage firm are protected from unlawful or incorrect trades which could affect the client’s portfolio or the stockbroker’s license.
Online brokers are known as discount brokers in the US, but in Europe and Asia, these so-called online brokers affiliate with high-net-worth individuals, whose financial assets have a value greater than $1 million; and with that, online brokerage has become popular for reasons that there is ease and speed to do online ordering entry and the fees and commissions are significantly lower than those coming from full service brokerage firms within the US.
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Investors who trade through an online brokerage firm are provided with an online trading platform, which acts as the hub, allowing investors to purchase and sell securities, like fixed income, equities/stock, options, and mutual funds. Other components in the platforms are methods to track and monitor securities, portfolios and indices, as well as research tools, real-time streaming quotes and up-to-date news releases, all of these are necessary mechanism to trade profitably.
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In trading investments, there are risks, and these risks can come from fraudulent online brokers, and that’s why financial regulators warn potential investors to do research of the online brokers they plan to employ, such as determining if the brokerage firm is fully licensed and in what state, provincial or national jurisdiction. The US Federal Government has stepped up measures such as providing practical tips to avoid investment scams via their OnGuard online website, which cautions investors to be wary of investment lures from internet newsletters, investing blogs, or bulletin boards. There is also the risk of stock manipulators spreading false information or providing hot tips on investment sites, as part of their effort to affect the stock prices of shares in a particular security; and, therefore, investors are strongly advised to turn to unbiased sources when researching investments, like the US Securities and Exchange Commission. There are instances when inexperienced online investors trade without help from a trained stockbroker or investment adviser, such that they do not fully understand the potential risks of investing in a particular security, and so they become easy prey to stock manipulation; and for this reason, many legitimate online brokers offer a number of investment tools to educate and inform new investors.