An application system used to conduct trading – from opening to closing to managing market positions through brokerage firms
Written byCFI Team
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What is a Trading Platform?
A trading platform is an online trading system that uses computer software to execute trades in a networked environment. Trading platforms can be utilized for free or at a discount, depending on the financial intermediary.
With trading platforms, traders and/or investors can maintain funded accounts and conduct securities trades. The leading trading platforms employ sophisticated architecture databases to enhance security, information transparency, and provide secondary market liquidity.
The network-based environment allows traders to interact satisfactorily, apply appropriate search criteria, and electronically negotiate with offers based on transaction parameters and other terms and conditions to satisfy both parties.
Summary
- A trading platform is a software application system used to conduct trading and managing market positions through brokerage firms.
- Trading platforms offer functions and features that enable real-time interaction with trading partners.
- The most common types of trading platforms include commercial trading platforms and prop (proprietary) trading platforms.
Understanding Trading Platforms
Essentially, a trading platform is a network-based marketplace that provides users with unlimited functionalities to place trades, browse catalogs of financial instruments, and monitor accounts through financial institutions outside the bank dealer community.
In most cases, trading platforms are equipped with a combination of additional features, such as premium research information, real-time quotes, news feeds, or charting tools to facilitate real-time availability of trading information and warrant seamless negotiation among and between traders.
Trading platforms are also tailored to suit the particular needs of specific markets, such as futures markets, stocks, options, or currencies. By providing capabilities tailored to each market structure, trading platforms offer a greater deal of choices on how to execute trades and manage trades.
Types of Trading Platforms
There are two types of trading platforms – prop (proprietary) trading platforms and commercial trading platforms. For prop trading platforms, applications are designed by large brokerage businesses and imitate the trading style and requirements of electronic brokerage models.
On the other hand, commercial trading platforms target retail investors and day traders. Commercial trading platforms are easy to use and come bundled with helpful features, such as charts and news feeds, to facilitate research and offer more insightful information to investors and traders.
Active trading requires many trading tools and techniques useful for pointing out trends. Selecting an ideal trading platform requires hands-on experience with active trading.
How to Choose a Trading Platform
When contemplating the choice of a trading platform, an investor should consider both the underlying features and the required fees. It is important since different types of traders need different features to make trading decisions.
To illustrate, features such as market depth charts and Level 2 quotes are essential requisites for day traders and other short-term traders. Conversely, tools specifically tailored to visualize options strategies are useful for options traders.
In terms of fees as a selection criterion, most traders prefer low-priced trading platforms. A case in point is a trader who adopts a scalping trading strategy. Although lower fees are generally preferable, there are usually trade-offs in the offering for consideration. For example, a trading platform that charges a lower price but only offers a few features and limited research, may not be advantageous.
Other ways to assess and compare different platforms are to review various mechanisms like feedback ratings and customer reviews; however, one must keep in mind that all reviewers may not be free from bias or not independent.
Other Requirements for Trading Platforms
Some trading platforms may only be available when specific brokers are involved, while others may be skeptical of certain intermediaries. It means that a broker or an intermediary’s reputation is a factor to be considered before settling for a particular trading platform.
In other instances, trading platforms may require traders to meet certain eligibility requirements before using them. A typical example is a minimum of $25,000 in equity that day trading platforms require traders to be available in their accounts. Options trading platforms may need traders to use their platforms with the approval to trade different options classes.
Examples of Popular Trading Platforms
Various trading platforms use electronic transactions for trade. Some popular ones include:
- Robinhood: Robinhood offers a free trading environment as a way of targeting young adults. The trading platform reflects a revolution from a mobile application to a network-based platform. Its sources of revenue include interests on customer account balances and earnings from order flow to large intermediaries.
- Interactive Brokers: Interactive Brokers is an interest-based trading platform for investors with professional knowledge in investing. It provides investors with access to global markets at low fees.
- TD Ameritrade: One of the popular trading platforms, TD Ameritrade offers brokerage services to investors and traders. The platform’s since developed the Trade Architect platform after acquiring ThinkoSwim.
- TradeStation: TradeStation is another trading platform that is popular with trading algorithms. It executes trades using Easy-Language automated scripts.
Additional Resources
CFI is the official provider of the global Capital Markets & Securities Analyst (CMSA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful:
