While the term “stockbroker” is still in use, more common terms are “broker”, “financial advisor”, “registered rep.” or simply “rep.” — the latter being abbreviations of the official Financial Industry Regulatory Authority (FINRA) designation “Registered Representative,” obtained by passing the FINRA General Securities Representative Exam (also known as the “Series 7 exam”) and being employed (“associated with”) a registered broker-dealer, also called a brokerage firm or (in the case of some larger money center broker/dealers) a “wirehouse”, typically a FINRA member firm. Other FINRA licenses or series exams exist. Individuals holding some of those licenses, such as the “Series 6″, cannot be called stockbrokers since they are prohibited from selling stock and are not trained or licensed in the full array of capabilities of a Series 7 stockbroker (see list of securities examinations). Selling variable products (such as a variable annuity contract or variable universal life insurance policy) typically requires the broker to also have one or another state insurance department licenses.
A stockbroker is a regulated professional individual, usually associated with a brokerage firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission. Stockbrokers are known by numerous professional designations, depending on the license they hold, the type of securities they sell, or the services they provide. In the United States, a stockbroker must pass both the Series 7 and either the Series 63 or the Series 66 exams in order to be properly licensed.
Many online brokers provide tools to help investors research and select potential investments. There are also numerous third party providers of information, such as Yahoo! Finance. Other reputable sites provide information on business sectors, news and financial statements of individual companies, and basic tutorials on subjects such as diversification, basic portfolio theory, and the mitigation of risk associated with volatility in the stock market.
In all investments, there is a risk of investment fraud, this risk can increase for online brokers where the investor does not have a personal relationship and the broker may be located in a different jurisdiction. For this reason some financial regulators warn potential investors to research the online brokers they plan to employ, assuring that those firms are licensed within their state, provincial or national jurisdiction. Informed investors are less likely to fall victim to unlawful securities schemes, such as the so-called “boiler room” scam. The US Federal Government provides practical tips to avoid investment scams via their OnGuard Online website. This website cautions investors to be wary of internet newsletters, investing blogs, or bulletin boards. Stock manipulators often float false information and “hot tips” on these sites, as part of an effort to affect the price of shares in a particular security. Investors are also advised to turn to unbiased sources when researching investments. In the US, the U.S. Securities and Exchange Commission (via their EDGAR database) is one example.
Investors will typically invest without the help of a trained stockbroker or investment adviser and may not fully understand the potential risks of investing in a particular security. Inexperienced investors are easy prey for stock manipulators and pump and dump schemes often associated with penny stocks. For this reason, many online brokers offer a number of investment tools to educate and inform new investors.
Investors who trade through an online brokerage firm are provided with a online trading platform. This online trading platform acts as the hub, allowing investors to purchase and sell such securities as fixed income, equities/stock, options, and mutual funds. Included with the platform are tools to track and monitor securities, portfolios and indices, as well as research tools, real-time streaming quotes and up-to-date news releases; all of which are necessary to trade profitably. Often, more robust research tools are available such as full, in-depth analyst reports and analysis, and customized backtesting and screeners to see how particular investment strategies would have been realized during different historical periods.
Investing online, also known as online trading or trading online, is where individual investors and traders buy and sell securities over an electronic network, typically with a brokerage firm. This type of trading and investing has become the norm for individual investors and traders since late 1990s with many brokers offering services via a wide variety of online trading platforms.
A trader who thinks that the EUR/USD price will close at or above 1.2500 at 3:00 p.m. can buy a call option on that outcome. A trader who thinks that the EUR/USD price will close at or below 1.2500 at 3:00 p.m. can buy a put option or sell a call option contract.
At 2:00 p.m. the EUR/USD price is 1.2490. The trader believes this will increase, so he buys 10 call options for EUR/USD at or above 1.2500 at 3:00 p.m. at a cost of $40 each.
The risk involved in this trade is known. The trader’s gross profit/loss follows the “all or nothing” principle. He can lose all the money he invested, which in this case is $40 x 10 = $400, or make a gross profit of $100 x 10 = $1,000. If the EUR/USD price will close at or above 1.2500 at 3:00 p.m. the trader’s net profit will be the payoff at expiry minus the cost of the option: $1,000 – $400 = $600.
The trader can also choose to liquidate (buy or sell in order to close) his position prior to expiration, at which point the option value is not guaranteed to be $100. The larger the gap between the spot price and the strike price, the value of the option decreases, as the option is less likely to expire in the money.
In this example, at 3:00 p.m. the spot has risen to 1.2505. The option has expired in the money and the gross payoff is $1,000. The trader’s net profit is $600.
a binary option is a type of option in which the payoff can take only two possible outcomes, either some fixed monetary amount of some asset or nothing at all (in contrast to ordinary financial options that typically have a continuous spectrum of payoff). The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option. The cash-or-nothing binary option pays some fixed amount of cash if the option expires in-the-money while the asset-or-nothing pays the value of the underlying security. They are also called all-or-nothing options, digital options (more common in forex/interest rate markets), and fixed return options (FROs) (on the American Stock Exchange).
When buying a binary option the potential return it offers is certain and known before the purchase is made. Binary options can be bought on virtually any financial product and can be bought in both directions of trade either by buying a “Call”/“Up” option or a “Put”/“Down” option. Binary options are offered against a fixed expiry time.
For example, a purchase is made of a binary cash-or-nothing call option on XYZ Corp’s stock struck at $100 with a binary payoff of $1,000. Then, if at the future maturity date, often referred to as an expiry date, the stock is trading at above $100, $1,000 is received. If the stock is trading below $100, no money is received. And if the stock is trading at $100, the money is returned to the purchaser.
The value of a digital option can be expressed in terms of the probability of exceeding a certain value, that is, the cumulative distribution function, which in the Black-Scholes equation is the Gaussian. Due to the difficulty for market-makers to hedge binary options that are near the strike price around expiry, these are much less liquid than vanilla options. Dealers often replicate them using vertical spreads, which provides a rough, inexact hedge.
In finance, an electronic trading platform also known as an online trading platform, is a computer software program that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as stocks, bonds, currencies, commodities and derivatives with a financial intermediary, such as brokers, market makers, Investment banks or stock exchanges. Such platforms allow electronic trading to be carried out by users from any location and are in contrast to traditional floor trading using open outcry and telephone based trading.
Electronic trading platforms typically stream live market prices on which users can trade and may provide additional trading tools, such as charting packages, news feeds and account management functions. Some platforms have been specifically designed to allow individuals to gain access to financial markets that could formerly only be accessed by specialist trading firms such as those allowing margin trading on forex and derivatives such as contract for difference. They may also be designed to automatically trade specific strategies based on technical analysis or to do high-frequency trading.
The National Futures Association (NFA) in the US lists the following general standard requirements for forex electronic trading systems;
Authentication (Passwords, Authentication Tokens such as secureID cards; or digital certificates)
Transactions recording standard
Pricing and slippage standard
The client graphical user interface of the electronic trading platforms can be used to trade currencies, equities, futures, or options and are also sometimes called trading turrets (though this may be a misuse of the term, as some refer to the specialized PBX phones used by traders).
During the period 2001 to 2005, the development and proliferation of trading platforms saw the setting up of dedicated online trading portals, which were electronic online venues with a choice of many electronic trading platforms rather than being restricted to one institutions offering.