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. But in the shorter term, the movement toward such a market may require regulatory oversight. An ideal oversight process would simply nudge the market toward full information exchange and free competition-rather than foster unnatural controls over the way the market functions. Transparency is the degree of openness about how, where, and when individual investors' transactions are executed.