If the investors are aware of this spread, the market would correct itself to a more efficient structure. The problem, however, is that the spread quoted by market-makers is often unobservable to investors. In such cases, there is limited competition to obtain best prices for each order, and it is highly likely that the bid-ask spread increases. Back to Top Implications for Online Trading Online trading also engenders some changes in the traditional investing scenario. First, the wide variation in investor knowledge of the stock market and of trading is crucial in the online setting.
Experienced investors can better identify the benefits and costs of choosing specific e-brokerages.
Second, the frequency of online investor trading deserves special attention. Many market analysts suggest that the growing U.S. economy and the low commissions charged by e-brokerages influence investors to trade more often. Frequent trading is generally contrary to the recommendations of financial theory. At the same time, the investor may be unaware of the indirect costs incurred with each trade. Third, the evolution of electronic trading may increase market fragmentation in the short run.