The Pros and Cons of Online Share Dealing

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It’s fast, exciting, can be extremely good value and is in many ways very convenient. But trading shares online can also be hampered by technology limitations and brokers’ rules. It can also be a very effective way of losing money.

Easy does it

Trading shares at the touch of a mouse has advantages - most of all the fact that it can be done from anywhere in the world, at any time of the day or night, and without the need for complex paperwork.

This ‘out of hours’ facility means you can use evenings and weekends to research investments and so make better-informed trading decisions. Buy and sell orders can be issued at any time and then they will be placed as soon as the financial markets open.

But this ease of trading needs to be treated with great caution. In the comfortable, one-touch world of your own home or office, it is easy to lose a sense of proportion, and victims find that money can lose its value. Unless you remain constantly aware that your entire life savings could be wiped out with a casual click. Share prices go down as well as up – sometimes very rapidly.

What brokers offer – and what they don’t

Online trading can bring low dealing costs – often less than £10 per trade, regardless of the size of the deal. Some online brokers offer new clients a number of introductory free deals, or a certain length of time free of trading charges.

But brokers will often restrict how much you can invest, what shares you can buy from them (for example, many ignore the Alternative Investments Market of young companies) and won’t issue share certificates, which entitle you to directly-delivered takeover information and other shareholder perks. That means you can only sell your shares to the same broker from which you bought them.

A technical point

Fast online transactions are available thanks to the wonders of fast global transaction services, brought to you by the World Wide Web. But all technological systems are sometimes racked with faults and failures, so online traders are at the mercy of their computers and connections. Dealing can be slowed or halted by technical failures. This can be a critical disadvantage at times when share prices are rising and falling at great speed.

Choosing a broker

When choosing an online broker, it is also wise to consider the settlement period – the time before you can realise your cash, possibly to use in other investment opportunities. This can vary between one and ten days.

Be aware that some online brokerages can be bogus, set up simply to con people into providing private financial information and leaving them open to fraud. The Financial Services Authority (FSA) regularly comes across sham sites claiming to be Internet share dealers. The simple advice is if you have any doubts, keep away.

The FSA doesn’t keep a list of legitimate dealers, but a web search engine ought to lead you to one, or at least to an online directory.

 

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