Getting involved in trading is something most people have thought about, especially as the internet makes it so much easier than it once was to get into. But there are still some fairly basic questions you need to ask before you make the leap into turning your curiosity into the start of a trading career. One of these questions is: should I use a trading platform or a broker when trading online?
There are benefits of each and different circumstances when each might be the right course of action. But what are the main differences?
What is the Main Difference?
A broker is essentially a sales representative whose job it is to negotiate on the trader’s behalf and on the behalf of the other buyer/seller in the trade. They usually work for firms and buy and sell stock and securities on behalf of a trader who has given money to allow it to be invested. A trading platform, on the other hand, allows traders to open, close, and manage trades using the platform as the intermediary. Trading platforms are often offered by brokers so that traders can do their own trading, as long as they make a designated amount of trades in an allotted time. Both brokers and trading platforms have pros and cons when it comes to trading online.
Does the Difference Matter?
For some aspects of trading, there makes no real difference which method you use. For example, short selling can be done through a broker or through a CFD (contract for difference). Short selling refers to the act of selling an asset that you don’t own in the hope that, by the time the deal goes through, it will have decreased in value so you can make a profit. This can be done through a broker, who will sell the asset for you, give you credit, and allow you to buy back the asset to give back to the broker. Though, CFDs through a platform could be used to do the same thing and trading on the leverage if the price of the CFD drops during the trade. However, doing this through a broker means that someone must be available to lend the stock in the first place, so a CFD could be the best option.
Pros and Cons
The benefits of using a broker mean that if you don’t have as much experience or feel as confident when it comes to trading, there is an expert advisor willing to explain how to go about trading. It also means that you can learn through how your broker would have made the trades, which would help inform your trading journey going forwards. However, many trading platforms offer up-to-the-minute information and market data.
Whether to use a broker or a trading platform depends on how confident you feel with trading. Some beginners choose to use a broker, whereas others feel a trading platform can provide the same amount of information. Both act essentially as intermediaries, with trading platforms providing more anonymity for the buyer and seller, while a broker negotiates between the two.