Investment Through On-line Banking Services: Risks and Rewards

The growth of the Internet in the last twenty years has spurred the growth of on-line financial services as well.  These days on-line banking and e-commerce have become ubiquitous, as financial transactions are carried out at users’ convenient place and time.  An offshoot of this broader phenomenon is on-line investment services offered by various banks.  This means that the erstwhile specialized activity of stock-trading and stock-investing have now been made accessible to common people as well.  There are both advantages and disadvantages in using on-line investment services. Foremost of the advantages are the convenience and ease of use associated with investment websites.  A number of research and analytic tools are offered to users to aid their decision making process. Lay investors can also save up money on the brokerage charges, as on-line brokerages offer cheaper transaction prices when compared to human-agent brokerages.  But the biggest threat to investments comes from systemic flaws of free-market capitalism itself.  Over the course of the last century stock markets across the world have seen cycles of boom and bust.  While things can look hunky-dory during the boom phase, the inevitable crash can wipe out majority of investments.  Beyond this major threat, there is the vulnerability associated with all electronic transactions carried out in the Internet, as fraudsters and hackers are constantly looking to breach security systems in place.  The rest of this essay will look closely at some of the pros and cons of investment through on-line banking services.

As the Internet grew into a viable global communication system, the nature and scope of online financial transactions was also transfigured.  This brought with it several advantages to investors, as they can now access valuable information and analytic tools at the click of a mouse button.   For example, a plethora of websites that give specialized advice to retail investors have cropped up as well.  These include Daily Stocks, The Financial Center (http://www.tfc.com), Fund Alarm (http://www.fundalarm.com), Ibbotson Associates (http://www.ibbotson.com/research/iafp96.htm), InfoBeat (http://www.infobeat.com), Researchmag.com, etc.  Each of these websites offer tools and features for performing in-depth analysis of various listed companies.  In the United States, the Securities and Exchange Commission, which is the regulatory arm of the Federal government, has its own website too (http:/www.sec.gov), which gives authoritative information on various stocks for the perusal of all stakeholders.  Here in the UK, the Financial Services Authority plays the equivalent role of regulating the stock exchanges and ensuring their smooth functioning. (Garmhausen, 2008)

So common people, who are willing to spend time carefully studying various stocks on the market and who are willing to adopt a disciplined approach are likely to fetch impressive returns on their investment.  These on-line information sites that offer a range of analytic tools are an integral aspect of investing through on-line banking services.  But it is equally important to remember that each of these websites have a disclaimer notice, which roughly translates to this: “Nobody guarantees a Web site as a true path to financial success. A slick Web site is no more a guarantee of useful, accurate information than a slick newsletter. Although the sites given were recommended by users or listed on major search engines, the rule on the Web, like elsewhere, is caveat emptor.” (Koreto, 2004)

While it is true that on-line investment sites charge lesser brokerage compared to human-agent broking systems, there are some other risks that the customer should be wary of.  Although there has been a consolidation of prices in the on-line stock-brokering industry, prices still vary “depending on whether the brokerage offers independent research and other features, such as access to business news-wires and other investor education resources. Still, paying $10 or so to buy stocks, mutual funds, or exchange-traded funds (ETFs), and another $10 to cash out, can dramatically cut into gains or compound losses on small investments.” (Holter, 2001)  Further, with the convenience and ease of access to the stock markets comes the attendant risk of indulging in gambling.  Beginners to the stock market might be tempted to try intra-day stock trading, which is a highly risky game.  Moreover, the on-line investment firms lure their customers to try intra-day trading by offering attractive brokerage charges, leverage facility and convenient pay cycles.  Hence new investors should abstain from seeing on-line broking firms as online casinos.  While “online brokerages make it all too easy to jump from one enticing stock to another with a few keystrokes, but losing your head could mean losing your precious capital. Brokers try to give you all kinds of tools to encourage fast trading, that’s the way they make their commissions”. (Garmhausen, 2008) So the individual investor should exercise caution and discretion in using online investment services.

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