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How to invest online: Online investing vs traditional (full-service)
Are you feeling overwhelmed with the plethora of investment options and struggling to decide between online and traditional investing?
You're not alone - the world of investing can seem like an intricate maze, leaving many potential investors feeling confused and apprehensive.
Our comprehensive guide demystifies the pros and cons of both approaches, guiding you through the essential steps to start investing online and providing practical insights to make an informed decision.
You're not alone - the world of investing can seem like an intricate maze, leaving many potential investors feeling confused and apprehensive.
Our comprehensive guide demystifies the pros and cons of both approaches, guiding you through the essential steps to start investing online and providing practical insights to make an informed decision.
QUOTE
The financial system isn't about justice, it's about efficiency.
Big ideas
- Online platforms have lower fees and commissions compared to traditional full-service brokers. This has had the effect of democratising investing because more people can now access markets that were once reserved for the wealthy.
- The number of individual retail investors has gone up a lot in recent years. Online trading platforms now host millions of accounts globally as people now prefer managing investments via phone, tablet or computer.
- Being able to use different order types like stop-loss and take-profit orders gives more control over the price you pay for an investment. These tools used to be used exclusively by professional traders but are now accessible to everyone through online platforms.
The difference between online investing and traditional (full-service) investing
In the rapidly evolving world of finance, the paths available for individuals looking to grow their wealth have diversified immensely. Today, investors can choose between two principal methods: online investing and working with traditional full-service stock brokers.
Online investing
It’s now commonplace to engage in online stock investing through web-based and mobile platforms. Although it’s helpful to have human support, people mostly prefer not to have to make a phone call or arrange an appointment to invest.
Online investing really came into its own in early 2021 when shares of GameStop went completely wild, driven by in large part by retail investors using platforms offering commission-free investing. Online forums, most notably r/WallStreetBets on Reddit, played a role in mobilising small investors to buy shares and options of GameStop.
Online investing really came into its own in early 2021 when shares of GameStop went completely wild, driven by in large part by retail investors using platforms offering commission-free investing. Online forums, most notably r/WallStreetBets on Reddit, played a role in mobilising small investors to buy shares and options of GameStop.
With the click of a button, you can buy online stocks, participate in online investment funds, or even delve into online gold investing. Many platforms offer demo online trading accounts to help you get started. The accessibility and convenience of these platforms have made them a preferred choice for this generation of investors.
Full-service brokers
These offer a more personalised and comprehensive investment experience. The best full-service brokers in the UK or elsewhere aim to provide expert advice, investment management, and even full-service wealth management.
These traditional brokers purport to have deep knowledge of investment opportunities, market trends, and portfolio strategies. That way, they can ‘hand-hold’ investors through any investment decisions or handle the entire thing without the investor from researching investment opportunities to executing trades.
These traditional brokers purport to have deep knowledge of investment opportunities, market trends, and portfolio strategies. That way, they can ‘hand-hold’ investors through any investment decisions or handle the entire thing without the investor from researching investment opportunities to executing trades.
Discount brokers
These were the original low-fee choice for investors, and many now offer an online platform to use. They, by definition, offer lower fees than full-service brokers, but unlike most online investment platforms, discount brokers might still provide some personalised advice and support.
The entire full service vs discount broker comparison really revolves around the level of service and support provided and how much you’re willing to pay for said service. You just need to think about your needs and how much time you can put into investing to make the right choice between the two.
The entire full service vs discount broker comparison really revolves around the level of service and support provided and how much you’re willing to pay for said service. You just need to think about your needs and how much time you can put into investing to make the right choice between the two.
Cost comparison: Online investing vs traditional investing
The cost structure is at the heart of the difference between online and traditional investing services. Online trading platforms almost always have lower fees and very low or even no minimum deposit requirements. This clearly makes them more accessible to a broader range of investors because of the lower barrier to entry for those with less to invest.
In contrast, full-service brokers typically charge higher fees for their expertise and personalised service. The decision between online investment management and full-service wealth management often boils down to what you value more: lower costs and more control with online platforms or personalised expert guidance at a premium.
In contrast, full-service brokers typically charge higher fees for their expertise and personalised service. The decision between online investment management and full-service wealth management often boils down to what you value more: lower costs and more control with online platforms or personalised expert guidance at a premium.
Pros and cons
Whether opting for online investment platforms or engaging with full-service or discount brokers, each approach comes with distinct advantages and challenges:
Ways to invest | Pros | Cons |
Online investing | ✔️ Accessibility to anyone with an internet connection ✔️ Lower costs and fees ✔️ Wide variety of online tools ✔️ Control over investments | ❌ Requires individual oversight ❌ Vulnerable if lacking knowledge/experience ❌ Security and regulations must be carefully considered ❌ Limited or no professional advice |
Full-service brokers | ✔️ Personalised guidance ✔️ Expert advice and full-service wealth management ✔️ Understanding of the client's financial goals ✔️Access to a wide range of investment products | ❌ Higher fees and commissions ❌ May appear as less transparent ❌ May not align with everyone's budget or investment strategy ❌ Less control over investments |
Discount brokers | ✔️ Professional advice at lower fees ✔️ Balance between online and full-service ✔️ Some level of personalised guidance ✔️ Broader access than online platforms alone | ❌ Less in-depth support compared to full-service ❌ May be more expensive than online platforms ❌ Limited product offerings compared to full-service ❌ Less control compared to online investing |
Benefits of online investing: Fees & control over investments
The lower cost of a trade, easier access to markets, more control and greater flexibility all add to the appeal of investing online, with investing apps like Trading 212 at the forefront of pushing the technology to lower costs even further and increase usability.
ETRADE, Ameritrade and Charles Schwab in the 1990s pushed the boundaries of the brokerage industry, helped along by the growth of the internet and the digitalisation of stock trading. When stock exchanges started pricing stocks in pennies rather than quarter-points and introduced regulations to free-up stockbroker commissions, it left the door open to a new way of investing.
Later, smartphones and the online trading app ecosystem provided individuals with unparalleled control over their investments. No longer restricted by the advice of full-service stock brokers, you can now strategise based on online investing courses free of charge or delve deep into online investment research to make informed decisions.
ETRADE, Ameritrade and Charles Schwab in the 1990s pushed the boundaries of the brokerage industry, helped along by the growth of the internet and the digitalisation of stock trading. When stock exchanges started pricing stocks in pennies rather than quarter-points and introduced regulations to free-up stockbroker commissions, it left the door open to a new way of investing.
Later, smartphones and the online trading app ecosystem provided individuals with unparalleled control over their investments. No longer restricted by the advice of full-service stock brokers, you can now strategise based on online investing courses free of charge or delve deep into online investment research to make informed decisions.
Assessing risk tolerance and investment goals
Every investor, from those using an online trading academy to professionals with full-service investing backgrounds, must recognise the balance between potential rewards and risks.
Platforms like Trading 212 offer tools to help determine your risk profile, an essential step in tailoring an online investing strategy that aligns with your long-term goals. Whether you're interested in online stock investing for growth or leaning towards other approaches like online investment in gold, knowing your risk appetite and setting clear investment objectives will serve as your guiding compass.
Platforms like Trading 212 offer tools to help determine your risk profile, an essential step in tailoring an online investing strategy that aligns with your long-term goals. Whether you're interested in online stock investing for growth or leaning towards other approaches like online investment in gold, knowing your risk appetite and setting clear investment objectives will serve as your guiding compass.
How to invest online (step by step)
Platform security
One of the first things you should consider when venturing into online trading is platform security. With rising cyber threats, ensuring the online trading system you choose has robust security measures is paramount.
Trading 212 places a high emphasis on protecting user data, making sure your online investing account remains secure against potential breaches. Before you start with any online trading app, always ensure it employs encryption, two-factor authentication, and other advanced security measures.
Trading 212 places a high emphasis on protecting user data, making sure your online investing account remains secure against potential breaches. Before you start with any online trading app, always ensure it employs encryption, two-factor authentication, and other advanced security measures.
Fees/commissions
When considering an online trading demo, for instance, ensure you familiarise yourself with any hidden costs. Trading 212 is transparent about fee structures, allowing you to make informed decisions without unexpected charges.
Comparison of online vs traditional brokerage fees
Brokerage type | Average account fee | Average trade commission | Management fee |
Online Broker | £0 - £10 | £0 - £10 per trade | 0.25% - 0.50% |
Full-Service Broker | £50 - £200 | £50 - £250 per trade | 1% - 2% |
Trading 212* | £0 | £0 | None |
Other fees may apply.
Product offerings
The diversity in product offerings can be a decisive factor when choosing an online platform. Whether you're intrigued by online stocks to buy, keen on online gold investing, or considering branching into online mutual funds, the platform's variety can guide your decision.
Trading 212, for instance, boasts a wide range of trading instruments, from stocks and ETFs to commodities and forex trading, ensuring investors have a plethora of choices. As a budding investor, having access to diverse online investment opportunities ensures you can build a diversified portfolio tailored to your financial goals.
Trading 212, for instance, boasts a wide range of trading instruments, from stocks and ETFs to commodities and forex trading, ensuring investors have a plethora of choices. As a budding investor, having access to diverse online investment opportunities ensures you can build a diversified portfolio tailored to your financial goals.
Online reviews
Reviews that get left online are not full-proof but offer one way for prospective investors to see other people’s opinions about different providers. Whether you're researching the best investment app, online trading academy reviews or seeking feedback on the latest online investing courses, reviews provide invaluable insights.
These online reviews can offer a clear picture of platform usability, fee transparency, and overall user satisfaction. Moreover, you gain insight into potential challenges or even legal concerns associated with a platform. Before committing to any online investment bank or trading platform, spend time going through reviews to ensure you're making an informed choice.
Understanding basic order types
Navigating any online trading system requires getting a grasp of basic order types. These orders determine how your trades are executed. Here's a breakdown of the key order types you'll often encounter.
Market order
This is the simplest type of order in online trading. It allows you to buy or sell a stock immediately at the current market price. For those eager to execute trades without delay, this is the go-to option. However, given the volatility of online stocks, the final execution price might vary from the initially observed price.
Limit order
This allows you to specify a price at which you're willing to buy or sell. It's beneficial for investors who aim for a specific entry or exit point in their online stock investing. This order only executes when the stock hits your set price, ensuring more control over transaction costs.
Stop order
These are instructions set to buy or sell a stock once it reaches a specified price, known as the stop price. Once this price is hit, the stop order converts into a market order, executing at the next available price.
Stop-loss order
These are designed to mitigate potential losses, the order automatically sells a stock when it reaches a certain price. It is a type of stop order used for exiting a trade.
Take-profit order
This is set to close a position once the asset reaches a predefined profit level using a limit order. It's a proactive strategy for online investors to lock in profits before the gains get reversed.
Online investing research
Doing your own research instead of relying on others is the cornerstone of how to invest online.
Trading 212 provides a wealth of resources, ensuring that you are well-equipped with current market data, trends, and analyses to guide your online stock and ETF selections.
Trading 212 provides a wealth of resources, ensuring that you are well-equipped with current market data, trends, and analyses to guide your online stock and ETF selections.
Research part 1: Investment strategies and portfolio diversification
The art of investing is as much about strategy as it is about selection. Investment strategies can range from value investing, where one seeks undervalued assets, to momentum investing, targeting assets that have shown strong recent performance.
No matter the strategy, portfolio diversification remains a foundational tenet. Diversifying means spreading your investments across different types of assets, such as equities, bonds, and commodities like online gold investing. This approach mitigates risk; if one asset underperforms, others in different categories may offset that downturn.
No matter the strategy, portfolio diversification remains a foundational tenet. Diversifying means spreading your investments across different types of assets, such as equities, bonds, and commodities like online gold investing. This approach mitigates risk; if one asset underperforms, others in different categories may offset that downturn.
Research part 2: Investment products and services offered
There is a plethora of investment products and services for you to choose from. Beyond traditional stocks, there are options like ETFs, mutual funds, commodities, and even real estate investment trusts.
Furthermore, services such as robo-advisors, online investment management, and educational webinars can guide investors through the complexities of the market. Trading 212 also offers demo accounts, allowing you to practice without using real money, honing your skills and strategies before diving into live trading.
Furthermore, services such as robo-advisors, online investment management, and educational webinars can guide investors through the complexities of the market. Trading 212 also offers demo accounts, allowing you to practice without using real money, honing your skills and strategies before diving into live trading.
Get to know UK investing regulations
Stringent financial regulations underpin the UK financial market to ensure the safety and fairness of online investing. The Financial Conduct Authority (FCA) is the primary regulatory body overseeing investment activities, ensuring that platforms like Trading 212 adhere to the highest standards of transparency, integrity, and customer protection.
One of the pivotal aspects of UK regulations is the protection of investor funds. Investment platforms are mandated to segregate client funds from their operating capital. This ensures that, even in the unlikely event of platform insolvency, investor assets remain untouched.
Moreover, the UK's Financial Services Compensation Scheme (FSCS) provides a safety net, compensating investors up to £85,000 should a regulated platform default. This offers a layer of security and trust for investors partaking in online stock investing and other financial activities.
Another focus of the FCA is ensuring transparency in fees/commissions. Hidden fees are a common grievance among investors. Regulations ensure that all costs associated with an online investing account, be it with a full-service broker or a discount platform, are disclosed upfront.
Lastly, the FCA mandates regular audits of investment platforms, ensuring compliance with the ever-evolving regulatory landscape. Platforms are required to maintain robust platform security measures, ensuring data protection and countering potential cyber threats.
One of the pivotal aspects of UK regulations is the protection of investor funds. Investment platforms are mandated to segregate client funds from their operating capital. This ensures that, even in the unlikely event of platform insolvency, investor assets remain untouched.
Moreover, the UK's Financial Services Compensation Scheme (FSCS) provides a safety net, compensating investors up to £85,000 should a regulated platform default. This offers a layer of security and trust for investors partaking in online stock investing and other financial activities.
Another focus of the FCA is ensuring transparency in fees/commissions. Hidden fees are a common grievance among investors. Regulations ensure that all costs associated with an online investing account, be it with a full-service broker or a discount platform, are disclosed upfront.
Lastly, the FCA mandates regular audits of investment platforms, ensuring compliance with the ever-evolving regulatory landscape. Platforms are required to maintain robust platform security measures, ensuring data protection and countering potential cyber threats.
Recap
This article explored online investing versus traditional full-service methods. Distinctions were drawn between online platforms, full-service, and discount brokers. We then delved into fees, levels of personal control, and product offerings as distinguishing factors. Readers were introduced to key order types and the essence of research in investing decisions. Additionally, the spectrum of investment products and the landscape of UK investing regulations were outlined.
FAQ
Q: What are the main things to consider when selecting an online broker?
When selecting an online broker, it's crucial to consider platform security, fees/commissions, product offerings, and online reviews.
Q: What are the basic order types that a trader needs to understand when investing online?
A trader investing online needs to understand basic order types like market orders, limit orders, stop-loss orders, and take-profit orders.
Q: What are some credible sites to undertake online investment research?
Credible sites for online investment research include financial news outlets, brokerage analysis sections, and independent financial research platforms.
- Wealth management: A broad financial advisory service that looks after a client’s entire financial picture, often including portfolio management, estate planning, and retirement strategies.
- Commission: A fee paid to a broker or financial advisor for executing a trade or managing an investment.
- Demo account: A practice trading account provided by many platforms, allowing users to simulate real market trades with virtual funds before risking real money.
- Robo-Advisors: Automated investment platforms that use algorithms to manage and allocate investments based on an investor’s risk tolerance and goals.
