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What is online trading Investing online, or self-directed investing, also known as online trading or trading online, has become the norm for individual investors and traders over the past decade with many brokers now offering online services with unique trading platforms. Prior to the advent of the Internet, investors had to call up their stockbroker and place an order on the telephone. The brokerage firm would then enter the order in their system which was linked to trading floors and exchanges.

In August 1994, K. Aufhauser & Company, Inc. (later acquired by TD Ameritrade) became the first brokerage firm to offer online trading via its "WealthWEB".[1] Online investing has experienced significant growth since that time. Investors can now enter orders directly online, or even trade with other investors via electronic communication networks (ECN). Some orders entered online are still routed through the broker, allowing agents to approve or monitor the trades. This step assists in the protection of both the client and brokerage firm from unlawful or incorrect trades which could affect the client’s portfolio or the stockbroker’s license Investors who trade through an online brokerage firm are provided with a trading platform.

This platform acts as the hub, allowing investors to purchase and sell such securities as fixed income, equities/stock, options, and mutual funds. Included with the platform are tools 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 which are necessary to trade profitably.

Often, more robust research tools are available such as full, in-depth analyst reports and analysis, and customized backtesting and screeners to see how particular investment strategies would have been realized during different historical periods… ...Investors must fully understand the potential risks of investing without the help of a trained stockbroker or investment advisor. These professionals are experienced both in trade and education, and forgoing their advice could be costly. Inexperienced investors are easy prey for stock manipulators and pump and dump schemes often associated with penny stocks.

For this reason, many online brokers offer a number of investment tools to educate and inform new investors.

WHAT AM I DOING WHEN I TRADE FOREX? Forex is a commonly used abbreviation for "foreign exchange," and it is typically used to describe trading in the foreign exchange market by investors and speculators. For example, imagine a situation where the U.S. dollar is expected to weaken in value relative to the euro.

A forex trader in this situation will sell dollars and buy euros. If the euro strengthens, the purchasing power to buy dollars has now increased. The trader can now buy back more dollars than they had to begin with, making a profit. This is similar to stock trading.

A stock trader will buy a stock if they think its price will rise in the future and sell a stock if they think its price will fall in the future. Similarly, a forex trader will buy a currency pair if they expect its exchange rate will rise in the future and sell a currency pair if they expect its exchange rate will fall in the future. WHAT IS AN EXCHANGE RATE? The foreign exchange market is a global decentralized marketplace that determines the relative values of different currencies.

Unlike other markets, there is no centralized depository or exchange where transactions are conducted. Instead, these transactions are conducted by several market participants in several locations. It is rare that any two currencies will be identical to one another in value, and it's also rare that any two currencies will maintain the same relative value for more than a short period of time.

In forex, the exchange rate between two currencies constantly changes. For example, on January 3, 2011, one euro was worth about $1.33. By May 3, 2011, one euro was worth about $1.48. The euro increased in value by about 10% relative to the U.S. dollar during this time.

WHY DO EXCHANGE RATES CHANGE? Currencies trade on an open market, just like stocks, bonds, computers, cars, and many other goods and services. A currency's value fluctuates as its supply and demand fluctuates, just like anything else.

An increase in supply or a decrease in demand for a currency can cause the value of that currency to fall.

A decrease in the supply or an increase in demand for a currency can cause the value of that currency to rise. A big benefit to forex trading is that you can buy or sell any currency pair, at any time subject to available liquidity. So if you think the Eurozone is going to break apart, you can sell the euro and buy the dollar (sell EUR/USD). If you think the price of gold is going to go up, based on historical correlation patterns you can buy the Australian dollar and sell the U.S. dollar (buy AUD/USD).

This also means that there really is no such thing as a "bear market," in the traditional sense. You can make (or lose) money when the market is trending up and down.