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The shift to online trading

Cambodia continues to leapfrog straight to newer, better technology.

The stock market launched in 2011, and with the almost definite first listing this year, bank savings and property investment will progressively shift into capital markets. Because of this, retail investors will require brokers to buy and sell securities.

They can choose from two arenas: a full-service traditional broker or an online broker, a product that bloss-omed in the 1990s and serves most of the world’s investors today.

The differences are vast. A full-service broker executes client trade orders and offers additional services such as research and advice on securities, financial planning on matters such as retirement and education savings, and opportunities to invest in initial public offerings.

With an online broker, however, an investor can trade most financial instruments over the internet. Full-service brokers charge a commission exponentially more expensive than that of a discount broker, who usually charges a set fee per trade, no matter how big or small and regardless of the number of shares transacted.

Using a traditional broker often takes longer, but some swear it is safer. The investor begins by calling the broker by phone, who then checks the price at which the security is trading.

The investor can then place an order at the market, meaning the order will be executed at whatever the market price is once it reaches the exchange, or the investor may place a limit order, which specifies an exact price the investor is willing to trade, which may or may not be reached.

Price swings, and the time required to process the order, may result in an unfavourable price for market orders.  The broker relays the transaction to the exchange and calls back if the transaction is filled.

A paper confirmation usually follows by mail, if executed. If the investor wants to change the order, he calls the broker again, and so on.

Almost all online brokers offer real-time market pricing and are much quicker, although some say they are risky for inexperienced users.

The investor begins by logging into his account and checking the current bids and offer prices. He can then place the order online, as a market or limit order, and wait for an online order confirmation.

Most systems allow the investor to see the unfilled orders in the queue at the bid and offer, and an investor can then place an order at the highest bid or lowest offer to ensure it is filled.

The online product proposition has evolved to offer state-of-the-art trading tools, usually at no additional cost to the account-holder.

Commissions charged by online brokers are also substantially lower.

The bigger discount firms charge between US$4.95 to $12.99 per trade, compared with fees ranging from one cent per share or one per cent of the trade value, usually with a minimum fee, for a full-service broker.

Although online traders view this lack of broker interference as an advantage, it still has its pitfalls.  

The opportunity to quickly and simply invest online hasn’t changed the fundamentals of smart investing. The fact remains that 80 per cent of online investors initially lose money.

Investors must have the time, skills, experience, knowledge, a strong personal financial plan, and the will to follow it.

Otherwise, compulsive online trading can be categorised as gambling. Traditional full-service brokers continue to survive for this reason.

Anthony Galliano is the chief executive of Cambodian Investment Management.  anthonygalliano@covenantim.com

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