Communication Strategies

Executive Summary
This report analyses the importance of Trade as regards the Internet. It focuses on the methods and strategies employed for a successful online venture and security protocols used in online trades. It also deals with the possible risks that may be encountered while trading online and offers effective solutions. When the topic of online trade is been discussed, the most important concern for many is security. Since most of the transactions occur without the physical presence of both parties, an assurance of trust has to be reached for an effectual communication and exchange of goods, services and funds. According to Watson et al (2007) Security is so important that it has become an eternal concern for online based organizations since they have very sensitive data to which only limited persons are given access to and protecting this data and messages transferred from one party to another is definitely the most important concern when online trading is been considered. Alpesh and Priyen (2002) found out that the major misconception that faced a lot of people nowadays is that you have to trade short term to justify opening an online account. This however can be totally disclaimed as even people that buy shares only once a year can totally save in commission charges. Also when there is an economic depression and markets are falling, the number of online trading accounts invariably increases. This report covers all the essentials of Internet Trading, all the important issues that an Internet trader need to be aware of to achieve desired success in the online business.

Introduction
From time immemorial, people have been thrilled with the idea of competition, accumulation of wealth, application of new and advanced technologies on the internet and so on. One may even dare to say with certainty that everyone is involved somehow in financial markets or have contributed either directly or indirectly to the chain of demand and supply which forms the core of the market. Traditional market traders and market specialists and investigators have generally had until recent times determined the course of marketing and the dos and donts of trading. However, today with the speed of communication and information over the internet, availability of online traders, security protocols protecting customer and organizational rights and the instant execution of computerized trading, the general public have at the tips of their fingers all the necessary information that professionals and specialists possess to profit from a dynamic form of trading online. Trading online is one of the fastest growing businesses of this age. According to a research carried out by Alpesh and Priyen (2002), by the year 2002, the number of people with online trading accounts in Europe had exponentially exploded to over 8 million as compared with the 900, 000 amounts of online trading accounts that existed in the year 1999. Online trade accounts are becoming if not that they have already become as common as traditional bank accounts. Also with the advance of Internet securities, trading on the internet has become even more popular and safe and many organizations and business oriented persons have considered this approach. For an effective business of this nature however, the most important medium of exchange is the internet. The internet facilitates a sort of two-way communication between buyer and seller unlike the traditional face to face method of exchange but the most appealing attraction has to be that the Internet offers timeless availability and an opportunity for the buyer and the seller to be in control of their business (Watson et al 2007).  This is one of the reasons why trading on the internet, e-commerce, e-business among others have been so successful.

As a result of the importance of Internet Trade nowadays, this paper seeks to address major issues as touching trading online, offer much needed information in the importance and possibility of successful business online and provide valuable reasons as to why Internet Trading should be considered and practiced by many.

Trading Foundations
Internet Trading or simply abbreviated ITRADE is a form of trading done over the internet. Trading on the internet is as easy as it is costly. One can easily lose a large amount of money due to ignorance and carelessness. One of the first things any one willing to practice internet trading needs to know is how to read prices and there are two general ways in which prices are represented The traded price is the daily representation of price of a particular trade representing how an exchange or transaction took place and the general representation of data as a collection of transactions.  The indicative price quote on the other hand is a combination of the bid  offer or the bid  ask (John Forman 2006). While the bid is the highest price the market is willing to pay the offer or ask is the lowest price at which the market will sell.

Another trading foundation that any online trader needs to be aware of is order types. There are different kinds of trade orders. There is the market order which has to be carried out immediately, the limit order which is generally an order executed at a particular price or at a better price, there is also the stop order which refers to a situation where a trade execution is delayed  depending on certain factors such as price. Finally there is the stop limit order which is a combination of both stop and limit techniques. This enables traders to get a fill (trade execution) at or superior to the limit order price.

Trading however involves not only market competition but also personal internal issues such as fear, pride, and greed and of course distaste for losing money (Gonzalez and William 1999). There exists a general psychological factor when it comes to any type of trading at all, and in this case, trading online.

Psychology is the reason for both the consistently superior performance of the methods the financial academics cannot explain, as well as the consistently poorer results of those approaches that fail (Elvin 2004)
Predictable behavior in the market is usually determined by psychology. Customer reaction to certain ideas and strategies determine the success and failure of such and what determines the customer reaction is precisely psychology. When people are asked to risk their personal finances on a speculative venture such as trading online, many issues of trust and security usually arise. Notwithstanding, being able to take risks and overcome fears while trading will enable one to take advantage of better prices and available stock.

Understanding the market, forces affecting the market and efficient strategies to use while trading online are indispensable for every online trader. Related to Internet trading, electronic commerce deals with the use of computer networks to improve personal or organizational trade performances (Watson et al 2007). Internet trade involves all interactions of the organization with its stakeholders.

Principally though, anyone willing to take a venture on online trading definitely requires the basic tools for business online. One of such tools is the PC. Depending on the needs of the trader and how much performance required, Pcs and other hardware required for Internet trading may differ. There are a lot of refinements to technology that have been implemented to improve the online trade business for instance the PC has been greatly advanced such that its capacity to communicate information over different networks and over large distances has paved the way for efficient methods of data management, processing and has resulted in even greater competition because of easy access to high-tech trading tools. The basic hardware requirements for anyone who is involved in Internet trading are basically a PC, modem, monitor, Internet Service Provider (ISPs), printer and a browser. Since online traders spend virtually all of their time on the internet, when acquiring an Internet Service Provider, it is always preferable to choose the unlimited time plan.

Online Trade on its own is a skill that must be developed if success must be achieved.
No matter how much you are sure of your trading system, no matter how much research you do, no matter how successful you have been, you are never 100 certain.(Alpesh and Priyen 2002)

When it comes to Internet trading, there are some golden rules that should be applied as ignorance is very costly. The advantages of gaining online trade knowledge are very essential to ensure that ones hard earned money is not lost. According to Alpesh and Priyen (2002) the three golden rules that every online trader must apply The first is of such rules is that anyone involved in online trading must know exactly what he is buying. A preliminary stock research should be carried out before venturing into the business. Secondly, the ground rules for all investors under which an online trader buys and sells a stock or bond must be clearly understood. Thirdly, an internet trader must have a clear perception of the kind of risks been undertaken. When analyzing returns, the trader must consider as well an analysis of the risks involved. Online trading is basically trade involving an internet broker and offers the advantages of speed, convenience of accessibility and most times cheaper than other traditional forms of trade.

Electronic day trading involves opening and closing a trade position the very same day in order to generate certain profit. Day trading involves two major distinctions which are order execution and volatility (Gonzalez and William 1999). Alpesh and Priyen (2002) further explain that day trading is associated with very fast reactions to market conditions because of the short time frame. Internet trade similar to gambling inspires a desire for risk taking without the social stigma attached to gambling.
                                 
Types of Trading Systems
Alpesh and Priyen (2002) defined a plan to be a list of strategic responses to events beyond ones control. A plan enables a trader to gain some sense of control through answering crucial trade questions like where, what, when, why and how. Trading plans are building blocks for trading systems as they determine a traders effort. Trading plans usually cover a number of factors which include the trading objective, markets and instruments traded, trading time frames utilized, software, hardware and other tools to be utilized, amount of risk capital to be used, trading platforms used, risk management strategies, trading systems involved and the trading routine employed (John Forman 2006). Trading systems play a very important role in determining the success of a trading plan.

The easiest way to define a trading system is a set of predetermined rules by which one makes buy and sell decisions and executes them(Forman 2006)

Trading systems can be understood basically from some series of statements for instance, Go long ifwhen, and exit long ifwhen an example could be staying in the market if a price is above a certain period of time (say a 30-day moving average) but if it is less than this average, then exit. The other statement is going short ifwhen, and exit short ifwhen (Alpesh and Priyen 2002  John Forman 2006).

Trading systems should have objectives that are bases on the trading plan. In other words, the system should be able to yield what the trader expects.

Trading systems are majorly divided into two types Mechanical systems and Discretionary systems. A mechanical system is one in which the trader has very little input. It follows an exacting set of rules in which a trader knows that for every market occurrence, he is either out or in. This system provides after a series of manipulations very clear buy and sell signals. On the other hand, the discretionary system is more of a free-form system where the trader has a more profound role to play and the ultimate decision depends on him and he is able to consider all facts and incorporate personal experiences and uses personal judgment to buy and sell choices in light of present or experienced circumstances.(Forman 2006) Unlike the mechanical system which demands a certain action given a particular prompt, the discretionary system involves the incorporation of human experiences and personal judgments. Both have their respective pros and cons, the mechanical system for instance are stress free and can also be mathematically back-tested thus providing relevant information about future performance. On the other hand, the discretionary system provides one with the ability to employ human reasoning in taking decisions, and this is really invaluable as there is no means yet of imputing human experience into a mechanical system choosing what particular trading system to employ depends on the persons involved in trade since there has always been a great debate about what system is more appropriate. At this point, psychology comes to play a major role as well, as deciding what trade system to go for can be sometimes based on the type of personality one possesses. For instance a mathematically inclined person who is also interested in programming computers and is more logical than emotional may better suited for a mechanical system whereas someone who is more emotional, who likes to make personal choices and work hard may be better adapted for the discretionary system. There are many psychological tests available that can be of great help in determining the type of trading system to employ.  However, a good advice would be that one starts off leaning more towards the mechanical system since they are fixed and require almost no action from the trader, then later on when a better understanding and knowledge of the market increases with sufficient experience, the discretionary system can be adapted.

Strategies and Methods used in Online Trading
These tools and strategies can be understood simply as mechanisms that determine what actions to take when practicing trading on the internet. The three primary strategies used to analyze the trade market are a fundamental analysis, a technical analysis and a quantitative analysis (Forman 2006)

Fundamental analysis deals largely with choosing stocks. According to Alpesh and Priyen (2002), fundamentals help one to know how stock is performing and how different aspects of the company are bearing up. Fundamentals deal with what profits are been made, how much money is been invested, if stock is overpriced or whether the companies earnings are worse or better off than expected. Fundamental analysis is however not very reliable when it comes to short term trade and the reason for this is because at a short term, many factors influence price movement. (John Forman 2006). Fundamental analysis encompasses prices and volumes, how much stock has been sold both in the past and how much is currently selling and at what price. Since price is always varied, the objective fundamental analysis drives at is a logical conclusion as to what direction the stock price will take in the future. A clear awareness of tolerance to price unpredictability must be considered when choosing what stocks to buy.

Technical analysis deals with the use of historical information such as prices and volumes of stocks to predict the future. It measures and predicts human behavior and takes account of price and price movement over time.

Technical analysis is a method of determining opportune buying and selling points. It involves methods used to forecast future prices using the price data alone or using the price as an input in mathematical formulae and plotting the results (Alpesh and Priyen 2002).

In contrast to fundamental analysis that deals with an analysis of company investments to determine how prices move, technical analysis uses tools such as charts, trend lines, use of support and resistance (which analyzes a sort of battle between buyers and sellers), inter-market analysis among others to forecast future prices.

Quantitative analysis most often operates in unison with either technical or fundamental analysis. As defined by John Forman (2006), Quantitative analysis deals with the application of mathematical andor statistical methods to market data.  Quantitative analysis on its part helps to compare different markets or securities and also develop a probabilistic make-up of market behavior. Quantitative analysis is generally grouped into a number of categories which include observation counting which simply observes the frequency of occurrence of events, statistical evaluation which deals with a regression factor and other measures and artificial intelligence which covers neutral nets and genetic algorithms. These tools make up very powerful mechanisms for modeling and forecasting and are even more efficient when they are understood and rightly applied.

Conclusion
Internet Trade is evolving explosively and soon enough everyone will have to trade on the net in one form or another. There are several methods and techniques that when strictly adhered to, are able to guide a person toward achieving success in the business of online trade. What every trade system seeks to determine is the direction of future market and some of the techniques explained in this paper function to do just that. Fundamental analysis can be used to determine in value terms a long-term direction although it does not provide sufficient efficiency for short term direction. Technical analysis can be applied to any market without much importance to the time frame albeit it makes use of historical information and patterns that may not always be consistent. Quantitative analysis predict tendencies given certain scenarios work efficiently for the purpose of understanding specific factors of market movement but are limited in terms of an immediate application of buy and sell signals.

Trading online comes with a lot of benefits even though may be costly if one is not careful, For instance trading on the net gives one the opportunity to be actively involved in trading on big return days and to exit on days when there are no returns. Trading online provides first class information about what is moving in the market and where one may likely benefit from investing. With the number of people opening online trade accounts by the day, the benefits of trading online and the various and numerous success stories, internet trading will soon become the order of the day and no one would want to be left out.