Understanding the risks and benefits of using online investment platforms
Potentially lower fees, increased accessibility and convenience are some of the factors contributing to the rising popularity of online investment platforms. However, investors should also understand the limitations and drawbacks.
Benefits
Potentially lower fees
Online platforms may charge lower commissions than traditional brokerages because online services could involve lower operating costs. Robo-advisory platforms are also expected to make investment advisory services more accessible to the general public.
Convenience
You can place your investment orders anytime and anywhere. In addition to trading in securities, you can also get investment advice and access to news, corporate information, stock quotes, research and analytical tools from the online platforms.
Quick execution
Fully automated from the instant you make product selection (e.g. by inputting stock/product code) and hit "ENTER"; automation may also minimize human error (e.g. manual mistakes that may occur during verbal relaying of orders).
Risks
Potential knowledge gap
When trading online, investors generally rely on their own investment knowledge and experience, as well as the information posted on the platforms, to select products and make their own investment decisions. The lack of interaction with a sales or advisory representative means that investors may not be able to fully understand the nature and risks of an investment product without help prior to making an investment decision.
Information risk
While more financial information is offered on the internet, the accuracy and reliability of the information cannot be guaranteed.
Security
Beware of hackers attempting to breach firewalls, passwords and other security measures to compromise your account. Before opening an online account, check what security measures and policies are in place, e.g. encryption and firewalls.
Privacy
Potential privacy issues include, amongst other problems, leakage of private information and unauthorised/illegitimate use of customer information.
Reliability
System error may occur. If this happens, in particular during high market volatility and around market opening and closing, investors may lose critical market access and trading opportunities.
The best way to avoid the pitfalls is to learn more about online investment platforms and take steps to protect your own interest.
16 April 2018
