An online trading platform is a type of software program that is developed to facilitate trading in financial markets remotely via the internet. Trading platforms are supported by financial intermediaries like brokers and exchanges that process electronic trade orders.
Online trading allows traders from every corner of the world to participate in any financial instrument available. Financial asset classes like stocks, commodities, bonds, currencies, cryptos, and many more can be traded through online trading platforms.
Availability of easy-to-use trading apps on mobile devices & cheaper internet/data have increased access of the financial markets to retail traders & have dramatically increased the total trading volumes in recent years. As a result, several low-cost trading platforms have entered the market to reduce the overall fees.
This guide covers everything you must know before choosing an online trading platform in Nigeria.
Transformation of Online Trading Platforms and its impact on the financial markets and trading
Before the 1970s, most of the trades in finance were processed through trading floors and telephones. The financial instruments and the choices of trade orders on them were narrow while only a limited number of individuals had access to trade. Liquidity was also among the major concern before the introduction of electronic trading platforms.
After the introduction of electronic stock trading platforms in 1975, the majority of traders migrated towards the new and improved trading system. The participation by the retail traders also started skyrocketing. Later during 1980-1990, the electronic trading platform was adopted for trading multiple financial instruments.
Constant developments in the trading systems have evolved trading platforms consistently. Making them more efficient, useful, fast, reliable, and user-friendly for the traders. The online trading system provides real-time data and real-time execution of the trades which was not possible with conventional offline trading systems.
There has been sharp increase in value of stocks traded worldwide since 1990s, the trend was seen even higher in 2000s leading up to the 2007 financial crisis. The volume has been even higher in 2020-21 during the pandemic.
Forex market which is the largest financial market by turnover has seen Daily Forex Exchange trading volume increase by almost 430% since 2000s from $1.2 trillion daily in 2001 to $6.6 trillion dollars daily in 2019 according to Bank for International Settlements (BIS).
As per World Federation of Exchanges based on data collected from 41 leading derivatives exchanges worldwide reported that 32.89 billion derivatives contracts were traded in 2019 which was almost 61.5% growth over last 10 years.
Leading retail brokers with small retail clients like Robinhood, IG, Plus500 have reported impressive growth numbers in 2020; which is about 300%-500% increase in revenue growth and 150% user growth in a single year. Robinhood recently filed a report that they have 18 million retail traders and 80 billion dollars in customer assets.
This growth is credited to rise in retail participation in the financial markets and significant improvements in online trading platform technology making it more efficient and inclusive for everyone.
Today, online trading platforms are allowing small individual investors as well as large-scale institutional traders to participate in any capital market evenly. A large number of financial instruments and their derivatives are within reach of traders from every corner of the world through online trading platforms.
With rapid technological advancements and the transformation of internet services in the last two decades, online trading has been thriving vigorously. Thousands of retail traders all over the globe are onboarding various trading platforms each day in hope of making a side income, which is increasing the participation & the overall volume.
In short, the basic purpose of an online trading platform is to allow traders to place trade orders through financial intermediaries or match them with other buyers & sellers. The trade orders are processed instantly through the concerned broker.
To have the upper hand over other trading platforms and lure retail traders, each trading platform offers distinctive features and sometimes bonuses.
Due to huge demand in online trading since the start of the pandemic, there have been many large funding rounds for trading platforms in Nigeria & the world, and now a large number of online trading platforms are available in the market.
How to Pick an Online Trading Platform?
There are many trading platforms with different features, pros & cons that are suited for different needs. But, how do you make a choice?
From a large number of available trading platforms online, it is essential that you identify the one that can provide the best trading experience customized to your needs.
According to ForexTrading.NG, Nigerian traders must consider the following factors while picking up an online trading platform for themselves.
- Pick the one that suits your Requirements, Experience, and Trading Strategy
The suitability of the trading platform with your requirements and efficiencies must be checked comprehensively.
If you are a beginner, you might need a platform with a user-friendly interface and basic educational tools with a low minimum deposit requirement. An experienced trader will need more advanced research & analysis tools and easy access to day trading, scalping, and other advanced strategies.
Advanced trading strategies may not be the priority for a beginner and similarly experienced traders will not have a simple user interface on priority. Each trading platform has different pros and cons that must be checked keeping your requirements in mind.
- Look out for Services, Markets, and Instruments Offered
The number of available capital markets and trading instruments will be different for each trading platform. You must check for the availability of your preferred markets and instrument at the trading platform.
The financial instruments that you wish to trade on must be available along with all the instruments that you might trade in the future.
Some financial intermediaries of online trading platforms can offer additional services like portfolio management, copy trading, fund manager, etc. Some brokers also offer research data and advisory services. These services can be handy for some traders and can greatly help in managing your trading.
You must identify the services that you require and choose the trading platform that offers the same.
- Check Safety and Trust Factor
The financial intermediary or broker associated with the online trading platform must be regulated and reliable.
Several fake and deceitful brokers take advantage of the rising demand in the online trading segment. These brokers are unregulated and one must avoid trading with them. Choosing such brokers and their trading platforms can increase the counterparty risk.
Traders must seek the broker and trading platforms that are regulated by the concerned financial regulatory authorities. These authorities overlook the activities of the brokers, impose restrictions for the safety of traders, and promote transparency in the capital markets. A well-regulated broker is considered safe and reliable compared to those who are not regulated.
The regulation depends on the capital market that is offered. In Nigeria, the Nigerian Stock Exchange (NGX) and the Securities and Exchange Commission (SEC) are the concerned regulatory authorities for Stocks, ETFs, Mutual Funds and derivatives; and you can trade these instruments at NSE Regulated brokers. If you are looking for a fund manager to manage your capital market assets then you must only choose SEC regulated fund manager to do so.
Online Forex, Bitcoin and CFD trading are not yet regulated in Nigeria; but a forex broker with foreign top tier regulation (FCA, ASIC, CySEC) can be considered safe to trade with.
- Check and Compare the Brokerage, Fees, and Commissions
Fees are the major concern for several traders as they can greatly influence the profits and losses booked.
One must thoroughly check fees, spread, brokerage, and any charges that would be incurred for a trade. There can also be hidden charges and non-trading commission for account opening, maintenance, inactivity, currency conversion, deposit, withdrawal, minimum balance, etc.
Trading, as well as non-trading fees of the trading platform, should be checked and compared with other platforms. Although, the selection of the broker should not be done only on the basis of fees. Few unregulated and fake brokers allow online trading at a very low cost to lure the traders.
- Availability of Tools and Other Features
Research, analysis, and educational tools at the online trading platforms can increase the probability of making profits on a trade, while lowering your risks.
Traders must ensure that the selected trading platform has adequate charting tools with multiple indicators, and the availability of custom indicators. The platform should regularly provide educational material with news and analysis concerning the capital markets.
- Does it offer Demo Account?
A demo account can be very useful for beginners or those who are planning to enter the capital markets.
Trading on a demo account with virtual currencies can make the traders familiar with the terminologies and user interface of the trading platforms.
The price movement range, volatility, look and feel can be experienced with the demo account before making actual trades. Demo accounts are also useful to test new strategies and check the suitability of the capital market.
- Check the Deposit and Withdrawal Methods with Minimum and Maximum Limit
Limitations and shortcomings in deposit and withdrawal can be major obstacles in an online trading platform. Traders must ensure that the chosen platform accepts fast and convenient transactions through the preferred method. The minimum and maximum limits on deposit and withdrawal must suit the requirements of the trader.
- Check the Compatibility with Device
Some trading platforms are only available on limited devices. Before choosing an online trading platform, make sure your preferred trading device is compatible with the trading platform and all its features.
Traders can miss out on opportunities due to any issue of lagging, hanging, slow processing, or weak internet connectivity of the device, so you must make sure that the platform is free from any such bugs & is compatible with your device.
- Test the Customer Support Services
Traders can check the efficiency of customer support staff by raising random queries before opening the account. The effort and time to connect with the support executives can also affect the overall trading experience.
An online trading platform with helpful, user-friendly, and diligent customer service can assist traders at any step and enhance the trust factor of the platform.
In the end, it is important to note that trading can be very risky and you can lose a lot of money if investments don’t go as planned or if you don’t understand what you are investing in.
So, beginners must make sure that they don’t trade directly in the markets without gaining adequate experience and practice. They must choose a SEC regulated investment advisor or fund manager to help them understand the risks and to manage their investments.