Sunday, July 11, 2010
Stock Market Trading Software: is it useful?
With the introduction of advanced home computers (thanks to Apple and Microsoft in the 80s) and programming languages, there is a large variety of stock market trading software that is available nowadays. Are they really useful for the retail investor or trader?
As in most things in life (nothing is really perfect), there are advantages and disadvantages in using stock market trading software. Let's list them out here by the way, you will have noticed by now that I like to list things out in point form so that it's simpler to read. It's a habit of mine and I hope that it helps you in your reading):
Advantage of using stock market trading software #1
Stock market trading software helps us to save time. In the past, investing and trading were extremely difficult and time consuming because investors/traders had to get their hands on the company's fundamentals or stock charts with indicators in order to have the data available to analyse the company or the stock so that they can make their decision on whether to buy the stock or not. These days, all you have to do is to let the stock market trading software update itself before it can show you what you want to know. Some of the stock market trading software are web based and the data is constantly updated so that every time you go to the website to log in, you can look for what you need straight away. What needed a few hours in the past can now be easily settled within a matter of minutes. It means that you will have more time for yourself to do other things in life. After all, life is not ALL about the stock market is it? I'm a disciple of the stock market, but I do have other interests in life too, such as family, friends, my job... you get the picture.
Advantage of using stock market trading software #2
A big advantage of using stock market trading software is that it provides almost real time data for the investor or trader. Day traders particularly need real time data to make on the spot decisions and timing is crucial (It is very important to them as buy and sell stock/options on the same day and do not hold anything at the close of the stock market...important point to take note: Never never day trade unless you are highly competent in trading first. You can easily lose your capital of you are not careful, will tell you more about this next time). Investors also need updated data, particularly on news about companies so that in the case of good or bad news, they can react and make their decisions quickly. Do take note that if you need real-time information (such as news reports), the software charges will be very expensive as usually only the Big Boys (see my post on Stock Market Basics 101 #1 )will buy it.
Advantage of using stock market trading software #3
Stock market trading software complements the system we have for buying and selling stocks. As mentioned in my previous post on The Ideal stock market course/ stock market courses / stock market training programs #3, you need a comprehensive system for buying and selling stocks in the stock market (Note that comprehensive does not complicated... in fact a lot of good systems out there have some simple and relevant indicators and guidelines that helps one to make money in the stock market). If the stock market trading software can be configured to meet your system's needs, your life as an investor or trader will be much easier indeed. Hence, make sure that if you really purchase a stock market trading software, make sure it has what you need to complement your tools in your buy/sell system.
It will be almost impossible to list out all the major advantages out there, so I have mentioned the ones that I feel are the most important. Next, I will like to touch on the disadvantages of using stock market trading software.
Disadvantage of using stock market trading software #1
A major disadvantage of using stock market trading software is the cost of purchase. Some software requires a lump sum purchase while some others come with a monthly subscription. Usually, the cost comes up to a minimum of few hundred dollars per year. For example, let's just say that it costs $500 a year. Now, it's not an issue if you are investing or trading a sum of at least $100 000 or more, as it will come up to less than 1% of your capital and will help you to make even more money if used properly. However, if you are investing or trading at a smaller scale, at say $10 000, the cost will come up to a whopping 5% of your capital. Good investors or traders make typically 20% or more compounded a year and this really equates to 1/4 of their potential profits! Unless you are confident of making the amount invested in the software and much more, retail investors or traders should not spend more than, say 2% (this is only my suggested guideline) of his or her capital on stock market trading software.
Disadvantage of using stock market trading software #2
There are some stock market trading software that acts as a black box and tells investors or traders when to buy and when to sell. While some of these stock market trading software really works, I feel that it does not really help us in the long run because we will learn nothing out of it. I will use an analogy here: If we are given fish instead of being taught how to fish, our bellies might be full for the time being but we are in fact helpless as we do not know how to feed ourselves. I am a firm believer of learning the skills that can allow us to make our own buy and sell decisions in the stock market because it will stay with us for life. In fact, I am even planning of passing the skills I have to my children so that they too, can make money in the stock market. However, if you are really pressed for time and do not have feel that it is not necessary to have the skills, you can think of purchasing a stock market trading software or service that can do the job for you. Just make sure that whatever you purchased works. Ultimately, is this an advantage or disadvantage? Only you can answer this question. :)
Disadvantage of using stock market trading software #3
Some stock market trading software are not programmed very well, as such it makes it very complicated for the user. Instead of saving time, this will waste a lot of time instead as the investor or trader will have to learn how to use the software from scratch. There are also some stock market trading software that come with very little support from the vendor in terms of educational material and tech support which wastes a lot of time for the user as well. In order to prevent this, ensure that the stock market trading software that you purchase are easy to use and comes with a lot of support online or through the phone.
Ok, my fingers are a little tired from all this typing already... However, it is all worth it dear reader if it has helped you in any way on whether to purchase stock market trading software or not.
Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market trading software