What are trading platforms?
Trading platforms are technology solutions that allow investors to trade securities digitally. Brokerage trading platforms are typically offered to investors by financial institutions as a means through which their customers and clients can interact with the financial markets. Investors can open, close, and monitor their positions through a trading platform. Trading platforms may be tailored to a specific asset type, such as currencies, stocks, options, futures, or commodities, or they may allow traders to trade multiple asset types.
Trading platforms, particularly those designed for retail investor use, typically come stocked with easy-to-use interfaces and basic research tools to help users make informed investment decisions. These tools reduce the barriers to entry for investors and play a vital role in the current financial system.
Types of trading platforms
Depending on what a trading platform is being used for or the industry a company is in, one of the two different types of trading platforms will be utilized.
- Proprietary trading platforms: Proprietary trading platforms are built in-house for use by a specific brokerage or financial institution’s trading activities. Proprietary systems are generally more complex than those available for purchase or use by smaller traders or the public at large.
- Commercial trading platforms: Commercial trading platforms are available for purchase or use by anyone, typically retail investors and day traders. Commercial trading platforms are typically either free or come with specific stipulations regarding minimum account balances or number of monthly transactions.
Benefits of using a trading platform
- Manage market positions: Financial professionals and amateur traders alike use trading platforms to execute their trades. Investors can open, close, and manage their positions in different markets through a trading platform.
- Research potential investments: Investors can use trading platforms to research different investment products. The research tools in a given trading platform may include historical data, analyst ratings, scenario analysis, and more.
- Analyze market activity: Trading platforms typically provide users with market activity information like trade volume, order price, and market trend data. Having a keen understanding of a given market at a macro level is as important as understanding the movement of a specific asset during a certain period of time. Good trading platforms will provide users with the tools to do both.
Basic elements of a trading platform
The specific features vary by platform, but a complete trading platform will include the following elements:
- Trading interface: Trading platforms provide users with an interface through which the users do research, execute trades, buy and sell assets, and check up on their holdings.
- Research tools: All trading platforms offer at least rudimentary research and analysis tools. Traders can use the research tools available in a given platform to make informed investment decisions and time their moves correctly. Trading platforms may offer more robust research features like interactive market charts and scenario analysis for testing potential investment strategies.
Trading platforms best practices
In order to make trading platforms work, users are recommended follow these best practices:
- Understand fundamental concepts: Investors should understand balance requirements, the fee structure, and the full feature set of the trading platform before using one. Users should utilize simulation tools to try out potential trades and strategies before making actual investments.
- Utilize the full breadth of features: Traders operating in different markets will have different needs. A margin trader has different needs from a currency trader, who has different needs from someone who is day trading stocks. Certain trading platforms may be better suited for specific markets. The user should be fully aware of the breadth of features available in a given platform and weigh those against their specific set of needs. While using the trading platform, the trader should make full use of the specific set of features designed specifically for their type of trading.
Patrick Szakiel
Patrick is a Senior Market Research Manager and Senior Analyst (Fintech and Legaltech) at G2. Prior to G2, he worked in a variety of roles, from sales to marketing to teaching, but he enjoys the opportunity to constantly learn and grow that the tech industry provides. Outside of work, Patrick enjoys reading, writing, traveling, jiu-jitsu, playing guitar, and hiking.
