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The Advantages and Disadvantages Of Electronic Stock Trading

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Electronic Stock Trading Provides More Power To Individual Investors

Electronic Stock TradingThe stock market has been transformed by electronic stock trading over the past few decades.  Stock trading that was in the past a slow manual process, is now done far faster and at far higher volumes via computers and high-speed data transmission networks.  While the affects of electronic stock trading have not been entirely positive for individual investors, on balance electronic stock trading has been beneficial to individual investors and provided them a number of stock trading advantages that they previously did not possess.

The main advantages that electronic stock trading has provided individual investors include vastly reduced trading costs (commissions), faster trading execution times, and more personal control over trading decisions.  Before electronic stock trading and the Internet put stock trading at individual investors’ fingertips, profiting from daily stock price swings was out of reach for many individual investors.  The high commission costs and slow order execution times made day trading costly and cumbersome.  On top of that, stock prices were set by “specialists” who used their inside knowledge of a stock’s order-flow to jump ahead of incoming stock orders, which reduced stock trading profit potential for individual investors.

Electronic stock trading has changed everything for individual investors.  Now all a stock trader needs is an online brokerage account and an Internet connection to access vast quantities of stock market information that were once only available to stock market professionals and to trade stocks quickly via computer networks, paying modest flat commission rates.

The Downside To Electronic Stock Trading

The downside to electronic stock trading for individual investors is the advent of high frequency electronic stock trading, which is done entirely by computers running stock trading software.  High frequency electronic stock trading has made some segments of the stock market much more volatile than they were in the past and has decreased investor confidence in the stock market.  Furthermore, there is mounting evidence that high-frequency electronic stock trading puts individual investors at a disadvantage when they are trying to fill stock orders.  This disadvantage may result in order executions that favor high-frequency traders over individual investors.

Another downside to electronic stock trading for individual investors is the potential for making trading errors and incurring excessive losses while engaging in electronic stock trading.  While routing stock orders through stockbrokers in the past was cumbersome and expensive, it also served as an important check on trader’s inclinations to make rash stock buying and selling decisions.  While electronic stock trading provides individual investors the power to trade their own brokerage account and earn considerable trading profits, they need to ensure that they are trading using sound trading rules and not exposing themselves to excessive risk, which could lead to excessive stock trading losses.

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