Benefits of Online Trading
Trading commodities online is almost a one-stop shop. You virtually have everything you need when you log in to your trading account. Most online brokers will have real time quotes, charts, futures news, technical analysis programs and research available for their clients. This has opened the door for online traders to make more of their own trading decisions and implement trading strategies that once were not available to the average retail trader.
If you are going to day trade commodities and futures, you definitely want to trade online, unless you have someone else managing your account. Executions are almost instantaneous, which is a far cry from having to pick up the phone and call your broker to place orders and wait for your fill prices.
Low Commissions. The commissions are also much lower. Today, you can trade many of the futures contracts for under $10 per round-turn with most online brokers. Low commissions make several strategies more feasible to trade; including spreads, day trading and short-term trading. For example, if you wanted to do a more sophisticated trading strategy where you have to combine futures and options, the commissions might cost you $150 per trade with a full-service broker. However, with an online futures broker, it might cost you less than $30. That gives you a much wider range where you can be profitable on trades.
Dangers of Online Trading
No Mentor. There are two main issues facing online futures traders. The first is that you don’t have someone watching over your shoulder and to help you with your trades. Many new traders will make several foolish mistakes that will likely cost them money. Having an experienced broker with whom you can discuss trading strategies will likely keep you out of trouble and more than make up for the commission savings of online trading.
As with any new venture, having a mentor can prove invaluable. Just being able to ask a trading question and receive a good answer in a few minutes can save you many hours or days of researching on your own. Many traders take for granted how much they actually learn from their brokers and how much time and effort they have saved.
Over Trading. The second issue relates to the ever-increasing problem of over trading. This has been a problem with commodity traders for decades, but the advent of online futures trading has really accelerated the problem.
The commodities markets have the same lure to traders that Las Vegas has to gamblers. Typically, a new trader will come to the commodities markets with a trading strategy of holding trades for a period of weeks or months. As they watch the markets move up and down every day, they believe they can catch many of these smaller moves by getting in and out every couple of days. Commissions are cheap, so it seems like an easy proposition. Then, of course, the trader starts to get bored holding positions for a couple of days and starts day trading.
At this point, the trader is probably in way over his head. His account has probably suffered huge losses and a sizeable part of that is from commissions. His well-researched strategy for long-term trading does not apply to day trading, so he is trading without a good plan. In the end, he realizes he would have done very well if he just stuck to his original plan and his life would likely have been much less stressful.
The above scenario is a daily occurrence among those who trade commodities online. It is a lot for a new trader to handle. You have flashing quotes, scrolling charts with technical indicators and all it takes is a click of a button to place a trade. You don’t have to talk with a human to place a trade, so nobody will know what you’re up to.
Online trading can be a dangerous thing if you are not disciplined or have a gambling mentality. For those who are well disciplined and have a sound trading plan, trading commodities through an online broker is the best way to go.
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