How Does Online Stock Trading Work?

Online Stock Trading

Trading stocks online is one of the easier methods for investing in the stock market today.  With the advance of the internet, proliferation of online stock trading brokers, and facilitation of the online trading process, more investors are trading stocks than at any other point in market history.  The change has been phenomenal: it is estimated that there are 10 times the amount of private investors than existed just 20 years ago.  The vast majority are trading stocks online.

Online Stock Brokers

The tool which makes online stock trading so readily available is the online stock brokerage firm.  There are now hundreds if not thousands of individual online stock brokerage firms.  The stock brokers make the process of buying, selling, and investing in stocks, mutual funds, commodities, precious metals, and more, streamlined and easy.  Online stock brokers have made investing a point and click endeavor.  The get started trading stocks online includes only three small steps:

Opening an account with an online stock brokerage firm

Funding the account with bank wire transfers or a credit card

Selecting stocks, bonds, or other investment instruments and making a buy

This simplicity in the online trading process has had two major effects on the stock market investor: more investors are brought to the table as investment amounts are lowered and the online trading process demystified, and also the near collapse of the traditional retail stock broker.  Retail stock brokers, while an asset for investors looking for management, investment counsel, and so on, have largely been sidelined by the online stock trading giants.  With a simplified process, online research tools for potential investments, and account management tools, more investors are simply going it alone and not using retail stock brokers like in years past.

Online Stock Trading Process

The online stock trading process is almost completely digitalized.  Using ECNs, Electronic Communication Networks, online stock trading is almost all the work of computers these days.  An investor selects a stock and quantity for purchase using an online stock broker.  The sale is then communicated via the ECNs looking for a seller’s stock offer to match.  Once located the sale is made, the funds applied and deducted from the buyers online account, and the transaction is done.  Ownership confirmation of stocks is maintained with the online stock brokerage firm, and the accounts owned by the investors held there.

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