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What are the Different Types of Online Trading Firms?

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  • Written By: Alexis W.
  • Edited By: Heather Bailey
  • Last Modified Date: 11 November 2016
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There are numerous types of online trading firms including discount brokerage firms, commodities trading firms, and forex or currency trading firms. Each of the online trading firms has one thing in common — it has put a greater amount of personal responsibility in the hands of investors. It is now possible for a person to buy and sell stocks, futures, options, commodities and a wide variety of other types of investments directly from his own home. While this allows for greater personal freedom, it also creates greater risk.

The type of online trading firm the vast majority of people are most familiar with is a discount brokerage firm. These firms permit the buying and selling of stocks, mutual funds and various options contracts. The firms generally charge a small commission — much lower than would be charged if a trade was made through a full-service broker — and allow for a surprising amount of functional trading tools, including the ability to sell puts and calls and to place trailing stops or limits on orders so a stock can sell automatically. It is important to note that these firms do not provide guidance on investments, although many do provide educational materials an investor can read if he chooses. It is also important to note that many of these firms will freeze an investor's account if he becomes a "pattern day trader" by making too many trades on a daily basis.

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Commodities trading firms are another of the online trading firms. These allow for the trade of ownership of physical commodities, such as oil contracts or wheat contracts. Futures may also be bought and sold through such trading firms. Commodities trading and especially futures trading tend to be very risky and carry with them a large potential for loss. Investors engaged in this type of trading must be fully educated about all purchases being made and the risks involved.

Finally, there are forex online trading firms. These trading firms allow an investor to buy and sell foreign currency. Like commodities trading, forex can be a riskier investment than standard stocks, bonds or mutual funds, so investors must again ensure that they are fully educated and knowledgeable about all investment decisions. In addition, forex markets are open 24 hours per day, so investors should be aware that passive forex trading is not generally a good investment decision since regular monitoring of the markets is required.

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