If you’re looking for an easy way to make money from home, you’ve probably considered trying online trading. After all, it’s the perfect way to make money from home while asleep! The truth is, not all online trading is created equal, and you should certainly consider the many different types of online trading before making any decisions.
What Is Online Trading?
If you’ve ever played any of the popular computer games, you’ve undoubtedly heard of online trading. Basically, online trading allows you to purchase and sell different assets (generally stocks, cryptocurrencies, and commodities) on a platform (mostly) directly through the Internet. The most popular online trading platforms such as ‘Robinhood’ and ‘MetaTrader 4′ are actually quite easy to use. In fact, with the right tools, even beginners can get started within minutes and begin making money quickly. With all the buzz surrounding online trading, you’d think that everyone would want to dive right in. The problem is that not all online trading is created equal, and you need to understand the differences in order to avoid wasting your time and money.
Types of Online Trading
While most people think of online trading when they hear the term, it’s actually quite a bit more complicated than that. There are several different types of online trading, and knowing what they are means knowing when to use them.
In one corner, you have the traditional ‘retail’ traders. Essentially, retailers go into a brick-and-mortar store and purchase something directly from the manufacturer. After all, physical stores still exist and people like to visit them. With physical stores comes the opportunity to interact with salespeople, and sometimes this interaction results in profitable deals for the retailer.
Then, you’ve got the ‘wholesale’ traders. Essentially, wholesale traders purchase products in large quantities and then sell them at a discount to other businesses (mostly manufacturers). Since they purchase in large quantities, they often can negotiate better prices with vendors. Additionally, since they need to move large volumes of merchandise, they often have the advantage of being able to find the best prices available anywhere.
On the opposite corner, you have the ‘algorithmic’ traders. These are basically automated systems that purchase and sell stocks directly based on pre-set buy and sell orders. Essentially, there are no people behind the scenes. Everything is done ‘by the book.’ The problem with algorithmic trading is that, in the wrong hands, it can be a very profitable strategy. The trick is knowing when to use it and which platform to use it on.
When To Use Which Type Of Online Trader
If you’re looking for a simple answer to the question of when to use which type of online trader, simply follow this rule of thumb:
If you want to purchase an asset (generally stocks, cryptocurrencies, or commodities) that you need in relatively small quantities, use a retail trader such as yourself. Alternatively, if you’re looking to purchase large quantities of an asset or want to purchase an asset that is not physically available, use a wholesale trader.
Additionally, if you want to invest in something that is liquid (generally stocks and cryptocurrencies), use an algorithmic trader. Otherwise, if you want to invest in something that is harder to liquidate (ie: commodities), use a traditional trader.
Of course, this rule of thumb is only a general guideline. Each situation is a bit different and requires a bit of research. However, following this rule will help you choose the right type of trader for your needs.
The Pros And Cons Of Each Type Of Online Trader
Just because there are different types of online traders doesn’t mean that they are all created equal. Each one has their perks and their pitfalls. Here are some of the pros and cons for each type of online trader:
Retail Trader
Pros:
- You need to purchase only what you need. This is the most basic pros and cons list for a retail trader. Since you are purchasing small quantities of an asset, you will generally be able to find the rate that you need. That said, if you are doing this as a side business, you may find that the inventory (ie: the amount of stocks you have on hand) is quickly declining.
- You can try different stocks and different approaches without risking too much of your own money. As a beginner, you can use online stock brokers such as ‘Robinhood’ or ‘MetaTrader 4′ and simply follow the instructions. The worst that can happen is that you lose some money.
- Since you are purchasing small quantities of an asset, you have the opportunity to see how the market behaves. In most cases, retail traders are looking to profit from short-term price movements. In other words, they use buying programs to execute short-term buying and selling in the hope of maximizing their profits.
- If you want to do this as a full-time business, you can use websites such as ‘Crypto Investing’ or ‘OneOpinion’ to easily join a network of other investors. You can also use online stock brokers such as ‘TD Ameritrade’ or ‘Scottrade’ to get started.
- Cons:
- You cannot get the full picture without joining a stock pool. Essentially, when you are purchasing stocks individually, you are missing out on the whole picture. When things go wrong, it is generally because of a lack of information rather than a lack of skill. Learning how to use a stockbroker wisely is one of the essentials of becoming a successful retail investor.
- If you want to try new things, you have to take the risk. This is part of the reason why most retail traders lose money. They think that the only way to make money in the market is to take bigger and riskier positions.
- It’s not always easy to determine the true cost of living. When you purchase individual stocks, you need to figure out how much it will cost you to buy the food, shelter, and clothing you need. Essentially, you won’t know how much you will need until you get there. This is another one of the big downsides to this type of trading.
- If you want to succeed as a retail investor, you need to keep your emotions in check. This may be hard to do if you are a naturally emotional person. In some cases, losing money is one of the most painful things a person can experience. However, if you learn how to not get so attached to the outcome, you will succeed in the long run.
- If you are looking for a way to make money online, retail trading presents a solid opportunity. With the right research, tools, and learning, anyone can become a successful retail investor.
Wholesale Trader
Pros: