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What is Online Investment Banking?

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  • Written By: H. Terry
  • Edited By: Jenn Walker
  • Last Modified Date: 26 November 2016
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    Conjecture Corporation
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The Internet has made most banking activities possible without needing to visit a brick-and-mortar bank. One such activity is online investment banking. This is when companies offer shares, and investors buy and sell them, via the Internet. There are traditional brick-and-mortar banks as well as completely virtual banks that offer online investment banking services.

Companies are now able to put shares up for auction online. When a company offers public shares for the first time, these are known as Initial Public Offerings (IPOs). By selling IPOs online, and having all related banking services carried out electronically, banks have the option of reducing their transaction costs. This means online investment banking can sometimes be a less expensive option.

Online investment banking might also favor more equitable and market-directed trading. Investment brokerages sometimes engage in spinning. This is when they try to court the interest of executives of large companies by offering them desirable IPOs, possibly at the expense of smaller would-be investors. This is arguably less common in online investment banking wherein the ranking of bids for particular stocks are carried out automatically, and the highest bidders should therefore win the stocks. That said, the web is certainly no guarantee against unfair or exploitative behavior, so precautions should be taken.

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One should be very selective in choosing where to do his or her online banking. A good approach is to list the services and costs one is seeking and then measure various online banks or brokers against these criteria. It is also advisable to thoroughly investigate their reputations. For companies offering IPOs through online investment banking, it is probably best to stick with well-known banks, as they are more likely to be trustworthy, ethical businesses.

While there are many benefits to online investment banking, there can be certain drawbacks as well. People may find they miss personal face-to-face customer service. It is much easier for most people to develop a warm working relationship with a living person than with a computer screen. Also, technical difficulties can occur. These can either be on the part of the online banking system itself or user-related.

The expression "time is money" is particularly relevant when applied to making investments. One advantage to online banking could be an increased facility of after-market, outside-office-hours trading, but a person who frequently struggles with computers might find technical delays too cumbersome. For a web-savvy investor, however, the benefits to online investment banking most likely will outweigh the challenges.

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