Trading Basics: Differences Between The Types of Trading Platforms

Are you looking to know more about trade? If so, then keep reading! One of the first things you should learn before investing is trading platforms. These are what connects traders to financial markets. These platforms basically act as a medium where you can explore markets, execute trades (buy and sell) and utilise offered trading tools.

Now that isn’t so complicated, right? But you should know there are different trading platforms, each designed and developed to cater to different kinds of traders and their specific needs. This is important because choosing the right trading platform for you can make A LOT of difference when it comes to experience, scope of options and profit.

So before registering with the first trading platform that comes your way, you might want to take time and do some research to find the best platform for you! To help you out, below are the types of trading platforms along with what makes them different from the rest:

1 - Retail Trading Platforms

Platforms for retail trading are intended for individual investors who wish to trade independently of a broker. These easily navigable platforms usually include a large selection of assets, such as stocks, ETFs, options, and even cryptocurrency. Among the essential features of retail trading platforms are the following:

• User-Friendly Interface: Retail systems are made to be as simple to use as possible, so both novice and seasoned traders may utilise them. Frequently, the interfaces are easy to use and have basic navigation, charting capabilities, and instructional materials.

• Reduced Costs: When compared to professional trading platforms, retail platforms sometimes offer cheaper costs. They could be alluring to infrequent investors and those with smaller holdings since they provide commission-free trading.

• Market Access: By giving users access to a variety of markets and asset classes, these platforms make it simple for them to diversify their portfolios.

• Limited Advanced Features: Professional platforms often provide advanced features including direct market access (DMA), sophisticated order types, and high-frequency trading capabilities, while retail platforms provide a range of tools for analysis and execution.

Examples of trading platforms under this type are TD Ameritrade, Interactive Brokers, Robinhood and E*TRADE.

2 - Professional Trading Platforms

Professional trading platforms are designed for institutional investors and seasoned traders who need more advanced features and capabilities. These platforms include sophisticated trading features, such as:

• Direct Market Access (DMA): Skilled platforms offer traders direct access to exchanges, allowing them to swiftly and profitably execute huge orders. Institutional investors and high-frequency traders can benefit most from DMA.

• Advance Order Types: These including bracket orders, stop-limit orders, and algorithmic trading algorithms, are supported by professional platforms. With the help of these elements, traders may employ more complex trading techniques.

• High-Level Analytics: Expert platforms include comprehensive tools for market analysis, such as access to proprietary research and analytics, real-time data feeds, and sophisticated charting choices.

• Customizability: The ability to connect third-party tools and customise interfaces is frequently necessary for professional traders. These demands are met by professional platforms, which let users arrange their workspace in any way they see fit.

• Higher Costs: Professional trading platforms often have higher costs because of their enhanced features and direct market access. These may include increased commissions per transaction, data feed expenses, and monthly platform fees.

Examples of trading platforms under this type are NinjaTrader, MetaTrader 4 and 5, as well as Bloomberg Terminal.

3 - Social Trading Platforms

Social networking and trading are combined via social trading platforms, which let users communicate, exchange trading methods, and even mimic the moves of more seasoned traders. For people who are new to trading or would rather take a community-based approach, these platforms are perfect. Crucial elements consist of:

• Copy Trading: Those who lack the time or experience to trade alone might benefit greatly from the ability to automatically duplicate the moves made by winning traders.

• Community Interaction: Social trading platforms let users talk to one another and exchange ideas about trade, tactics, and market movements.

• Transparency: To assist users in making well-informed judgements about which traders to follow or emulate, these platforms frequently include comprehensive details on traders' success, including their historical returns, risk tolerance, and trading methods.

• Lower Entry Barrier: Social trading platforms are typically easy to use and don't require a lot of prior trading experience, so even novices may utilise them.

Examples of trading platforms under this type are eToro, ZuluTrade and Myfxbook.

4 - Algorithmic Trading

Trading platforms that employ computer algorithms to conduct deals quickly and in large quantities are known as algorithmic trading platforms. Professional traders and institutions who utilise automated tactics to exploit market inefficiencies use these platforms. Crucial elements consist of:

• Automation: Using trading algorithms that can execute trades automatically based on predetermined criteria, users may develop and test trading algorithms using algorithmic platforms. This can result in quicker execution by lowering the requirement for manual intervention.

• Backtesting Capabilities: Before implementing strategies in real-time markets, traders may fine-tune them with these platforms' facilities for testing algorithms against past market data.

• High-frequency trading (HFT): Algorithmic trading platforms are frequently utilised for HFT, which is the practice of executing transactions in milliseconds to capitalise on minute price fluctuations.

• Technical Requirements: A solid grasp of programming and financial markets is necessary for algorithmic trading. These platforms frequently offer APIs for trading systems that are custom-built to integrate with them.

Examples of trading platforms under this type are TradeStation, QuantConnect, MetaTrader 5 and MQL5.

5 - Cryptocurrency Trading Platforms

Platforms specifically created for trading digital assets like Bitcoin, Ethereum, and other cryptocurrencies are known as cryptocurrency trading platforms. These platforms offer features that appeal to a broad spectrum of traders, from novices to experts:

• Crypto Pairs: Users can trade one cryptocurrency against another or fiat currencies using the range of trading pairs that these platforms offer.

• Wallet Integration: Integrated wallets are a common feature of cryptocurrency trading platforms, providing a secure way to store digital assets.

• Security Features: These platforms prioritise security, including features like two-factor authentication (2FA), cold storage, and multi-signature wallets, in light of the dangers involved in trading cryptocurrencies.

• Market Access: Unlike traditional stock markets, cryptocurrency platforms offer access to international cryptocurrency marketplaces, many of which are open around the clock.

Binance, Coinbase, Kraken, and Bitfinex are a few examples of cryptocurrency trading platforms.

Take away

With your new-found knowledge, you can now pick out the trading platform best suited for your trading style, goals, chosen market and experience level. Other things to also consider when choosing are the platform interface, trading costs, regulations, credibility and reputation.