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If you’re just starting out making savings, you should probably avoid online trading.
Once you have a certain number of months for rainy days (six months normal living expenses is a good rule of thumb), the next step is generally safe investments like mutual funds and perhaps real estate - which has solid value as it’s on land.
Online trading generally comes in once you have a surplus of money secured beyond the things stated above and are interested in new means of investing, or if you have a special interest in doing it as a serious enterprise.
It’s a fast way to lose money that you don’t have, otherwise.
That said, in this guide, we’ll look at cybersecurity as well as general investment wisdom. Whether data breaches or prudent investment practices, there are concrete steps you can take as a regular trader to protect yourself.
Table of Contents:
Trading Safely Online 🦺
How safe is online trading? Just as with anything to do with internet use, there are a few risks involved with trading stocks online. The main culprits include:
Cybercriminals target big financial institutions because they hold valuable data. The identity theft Resource Center never has a year without a few hundred notable data breaches, which thankfully does not seem to be overall increasing, but has stayed at roughly the same range.
One of the more notorious cases was that of the Equifax data breach.
A common objective of malware and viruses is to snoop on your computer and online activities. Cybercriminals install spyware in order to get passwords and other valuable data through things such as key-logging. That specific type of spyware tracks what keystrokes you use, for identity theft.
In order to fight against these attacks, using several layers of protection is advised. Consider using the best malware scanners or other antivirus software.
You may have heard of this as man-in-the-middle attacks (MITM). Phishing also involves URL spoofing, the creation of false though convincing-looking documentations that mimic financial institutions, false emails designed to look like they originated from your broker, and so on.
The aim of this is to snoop out your passwords, at which point the cybercriminal will target your actual account.
Oftentimes, this is perpetrated by those who work inside of an official institution. They access your information and take over valuable assets.
Online Broker Protections of Your Valuable Assets ⚔️
Nearly all brokerage institutions are subject to the highest auditing practices and standards, with rigorous security protocols designed to protect you when using your account. These companies work with security specialists to constantly surveilled the landscape for new potential threat points.
You will typically see these security protocols:
Before you can log into your account, you’re required to complete an additional step. It’s another layer separating you and your password. We recommend that you always use this security protocol. Although simple, it’s effective.
Before you can log in, you’ll have to submit a verification code that’s sent to you either through text or email - after submitting your password. If a cybercriminal snoops out your passcode, they’ll be blocked at this stage unless they also have access to one of your email or phone (sometimes, you will also be warned if there’s a login attempt).
SSL (Secure Sockets Layer) Encryption
The typical standard is a 128-bit key that encrypts/decrypts data packets.
Because of the immense amount of computation power required to break apart this encryption level, SSL's are generally deemed to be invulnerable.
Your browser may warn you if you are sent to a website that does not have SSL encryption.
A secure server will have its own native antivirus and real-time monitoring protocols which include firewalls. Specialists use monitoring systems in order to spot any breaches such as phishing, malware, and suspicious plugins/apps.
Related Read: Best Free Antivirus Software
If there’s an extended period of inactivity, you’ll automatically be logged out of your secure account session. For instance, if inactive for 15 minutes, you may be given a notification asking if you wish to continue using the platform. If no response, you’ll be automatically booted out.
Taking Steps to Protect Yourself 🛡️
If you're using or considering using a VPN, never accept a link sent to your email or phone, even if it seems to arrive from your employer or an official Institution. Search out a reputable VPN.
During the COVID-19, which boosted the number of people seeking remote work, cybercriminals used this as an opportunity to increase phishing schemes, distributed out through emails, apps, and websites that report purporting to protect you (while actually stealing your data).
Other precautions you can take to protect yourself online:
Is Online Trading Safe? Pretty much but more if you use a strong password. You may have an instinct to create easy to remember passwords or ones that are simple to type out.
Many people use the same passwords for more than one finance-related website (online banking, online brokering, and so on).
This is a bad idea, it's much better if your password has no logic to it.
Make sure none of the characters in your passcode are easily related back to you as an individual.
Avoid using street addresses, common numbers, your names, anything related to your date of birth/phone number. A mixture of lowercase and uppercase characters is best, with symbols and numbers.
Take advantage of password manager automations for this process, so you don't continuously forget or have to remember an immense number of codes. (See our top 7 password managers)
Add Extra Layers to Your Account
A reliable antivirus and anti-spyware software will give you an extra defense against spyware, malware, viruses, and other threat points. Choose a system that regularly updates itself.
Make use of two-factor authentication. And always be aware of your surroundings, never leaving your computer alone around strangers. Always log out when you are done. Avoid writing down account information, where possible.
Making Sensible Trades 💵
Online trading can become a gambling addiction. If you have that sort of personality, it may be best to avoid it altogether. It’s never been more convenient to trade huge amounts of money. You just need to open up your laptop
[Are you setting proper stop-losses with each trade - and limiting each trade to under 2% of the total pot?]
Here are some due diligence you should use before and while trading:
#1 Always Remember That There Is a Risk
Investing is a risky enterprise. Be cynical of anybody advertising fast money online. There are plenty of charming sales-people with new schemes that will make you a millionaire in six months.
Brokers don’t give direct advice on buying shares, so treat it as a red flag if one offers specific share instructions. Control your emotions and make the wise decision to leave trading alone if you have an addictive personality. While your need to keep betting more may be bottomless, your pockets won't be!
#2 Go With an Online Brokerage With a Strong Reputation
A trustworthy broker is critical if you want to invest safely. Check credentials, including that they have a license. A licensed broker will be under financial regulations.
Another safety signal is if they’re recommended by other trustworthy sites. Go with those with strong customer service reputations and reasonable fees. If you intend to trade regularly, lots of small fees can diminish any profits you make.
#3 Know What You’re Investing In
To answer the question is online trading safe - There are specific benefits and disadvantages to each security. Being ignorant to the differences is not advised! For instance, investing in real estate/CFDs works totally differently to share work investments.
You should take the time to diligently understand the financial product you are handling. Those who are operating the product usually work like dealers in a casino. They want the house to win, and this might not necessarily involve you also winning.
Do not rely on the bank to inform you, as they do not necessarily have your best interests to mind. Choose a product that is lower in return, as this is virtually always linked to a lower risk.
#4 Diversify Your Portfolio
A cliche but for good reason. Never place all of your money into one financial product! Spread your investments: country, products, and industry - all three. One Market flounders, your losses can be absorbed by another. If US bonds plummet, Brazil's can keep you afloat.
Buying Guide 🔎
What is a Stock Broker?
A stockbroker professionally grants stock orders (buy and sell alike), as well as other security types.
They place these orders for clients - as registered representatives, also known as investment advisors or brokers.
Typically, a stockbroker will work for a brokerage firm and they get a sense of commission for their work. How much commission depends on who they are employed by.
Sometimes, people while referring to a brokerage firm itself when using the word stockbroker.
Stockbrokers will have strong knowledge (usually supported by a business administration or finance degree) around financial laws and regulations, how economics work, how currencies work, how to financially plan, how to financially predict/forecast, as well as accounting.
They also need to be good at cultivating interpersonal relationships.
What is the Safest Way to Trade Online?
#1 Invest in Self-Education
It's not enough to get a practice account with an online trading platform. You should start out by getting comprehensive education in online investment. Mastering this gives you an informed way to move forward, rather than just seeing behavioral patterns on a graph.
#2 Trade in Mutual Funds
Is online trading safe? Mutual funds make a strong argument that it is - and very much so. They work by collecting a pool of money from multiple investors, which are then invested in diverse Securities such as bonds, stocks, and money market instruments.
Each mutual fund is managed by a professional money manager, who is responsible for investing the pooled money in a what such a way to gain capital gains long-term.
#3 Select Big-Reputation Companies
As long as you follow the diversification rule, selecting companies across regions and industries, you can partition a portion of your money to invest in companies you think will be around 20 years from now and still going strong, such as Coca-Cola (not advice, just an example).
#4 Trade in Options
A reasonably safe investment that allows you to profit on a share without actually owning it. Options are typically a small investment and become voided after a couple of weeks. An option is priced at only a fraction of the share price.
Find a top investment platform that suits you the most, or go with the safe option of eToro, you won't regret going with this green investing giant.
Trade options in Tesla, Google or any other well-known typically expensive company. This will however take time to understand, as option trading is complicated.
Related Read: Best Online Trading Platform for Beginners
What Are the Disadvantages of Online Trading?
Disadvantages include that you won’t be dealing personally with a broker, and so are left to sink or swim alone.
New investors may skip the research stage, and invest blindly in companies that they know little about.
This can make it very very easy to invest too much too quickly, not setting proper limits to orders or investing without any real strategy.
If you have an addictive personality, you will be likely drawn to short-term trading, which invariably involves greater ROI potential but far greater risks. Gambling and trading are very related.
If you have a slow connection, you’re also at more of a disadvantage, missing out on potentially lucrative orders. And if your computer glitches out, you could lose money simply because a trade was incomplete.
Is Online Trading Legit?
Absolutely. Once upon a time, trading was mostly open only to big corporations, central banks, and wealthy people with expensive personal financial advisors. The growth of the internet has opened up trading, such as the Forex, to the average person. Discount brokers give an affordable entry point into trading, but with this has also come scams.
Related Read: Best Forex Broker (UK)
Is Trading Safe or Not?
Overall, trading is unwise for people without real savings. Once you have perhaps 6-12 months worth of living expenses saved, any extra can be put into a diverse portfolio. Of course, make sure to choose a trusted institution, ie. great uptimes, no freezing servers, etc.
Have a hierarchy of investments, beginning with long-term returns like mutual funds.
What is the Best Trading Platform for Beginners?
Which online broker is best for beginners? The best 3 online trading platforms, in our view, are eToro, Peppterstone, and IG.
With eToro you can legally copy trades of the most successful users on the platform (no extra charge).
While Pepperstone has great all-around value. For the question ‘is online trading safe’, it doesn’t get much better.
Hargreaves Lansdown has handy self-education automation. While eToro has better value and a very handy CopyTrader feature, good for those who just want to make a quick trade each day by mimicking successful users, rather than mastering trading from the inside out.
Final Words 🏁
How safe is online trading?
Trading safely comes down to choosing the right financial institutions/trading platforms, the right trading strategy, and best practices, as well as protecting your devices and account.
Always go for a platform with great security and a strong reputation for customer service. The security offerings should include firewalls, 2-step-authentication, and secure servers.
Consider a password manager. At least, use very strong password practices. And always have anti-spyware and antivirus firewalls on your devices. Never leave your device unattended and log out after each session.
To make sensible trades, know there is always a risk, start out with safe investments, consider investing in self-education, diversify your portfolio, avoid trading if you have an addictive gambling personality, and know trading should only come into the equation once you have 6-12 months of savings already secured.
Is Online Trading Safe? Yes, if you heed the above.