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Savers enter the capital markets to build wealth. Today's technology has narrowed the gap between professional traders and the mass market for financial products. Of course, online investing plays a role in leveling the playing field.
Identification
The Securities and Exchange Commission defines brokers as fiduciaries who execute financial trades for the account of another party. Online brokers typically fall into the discount category. Discount brokers take orders without offering advice.
Benefits
Online investing services offer speedy trades and low costs. The ability to disseminate information quickly through bandwidth promotes these efficiencies. The competitiveness of the online market also reduces trading costs and narrows the bid-ask spread--the difference between what buyers and sellers are willing to pay for investments.
Considerations
Large corporations have attempted to use online capabilities for auctions that target the investing public directly. Google's 2004 initial public offering, which employed the online auction format, highlights this trend.
Misconceptions
Online investing has empowered smaller investors. However, according to the Federal Reserve Board, the market still needs professional financial intermediaries to price, promote and sell complex securities to investors.
Warnings
The SEC cautions online investors to be on the lookout for identity theft and scams. Investors should install anti-virus software and never respond to emails that demand personal information, the SEC says.
Source:
SEC: Check out Brokers and Investment Advisers
SEC: Online Brokerage Accounts-Safeguard Your Money
SEC: Guide to Broker-Dealer Registration
More Information:
Federal Reserve: Value of Financial Intermediaries
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