Electronic Trading

Individual investors have been given an unprecedented opportunity to buy and sell stocks directly on stock exchanges without having to go through expensive and time consuming traditional brokerage firms or other middlemen. The key to this revolution in investment is the advent of electronic trading. Electronic trading puts you in direct contract with the electronic trading systems used by the major stock exchanges. Most of the stock exchanges in North America can be accessed through the Electronic Communications Network, an independent network set up to allow the various exchanges to communicate with each other. Electronic trading systems let you plug into the Electronic Communications Network or similar networks to buy and sell your stocks without going through a stock broker.

There are two main benefits to electronic trading over using a traditional brokerage firm or other middleman. First, your trades are made almost instantaneously as there is no need to wait for your broker to receive your instructions and execute the trade. Just do the transaction on your own time. This can be a huge advantage for active traders where minutes and even seconds can make a difference. The second advantage is likely the most important: money. Using an electronic trading system can be far cheaper than using a traditional brokerage firm to make your trades. Traditional brokerage firms usually charge a percentage fee on every transaction, although they sometimes just charge a flat free. With electronic trading, however, the investor usually just has to pay a monthly access fee to use the service, and then a small per transaction fee (which usually includes any exchange fees for accessing the Electronic Communications Network or using a market specialist to execute the trade). Therefore, if you are an extremely active trader (i.e. a day trader), using an electronic trading service can result in substantial cost savings. (Indeed, some services actually have a charge if you do not make enough trades in a day.) For this reason, electronic trading services should only be used by experienced traders who know they will be actively buying and selling stocks. If you are happy buying stocks and holding on to them for a long time, which is a perfectly reliable investment strategy, you will not find electronic trading to be very beneficial over more traditional brokerage services. Electronic trading should also not be attempted to relative newcomers to the investment world, as it requires a lot of knowledge to be used successfully.