What Is a Trading Platform? Definition, Examples, and Features

What Is a Trading Platform?

A trading platform is a software system that is used to trade securities. It allows investors to open, close, and manage market positions online through a financial intermediary, such as an online broker. Trading platforms are frequently offered by brokers for free or at a discount in exchange for maintaining a funded account and/or making a specified number of trades per month. The best trading platforms offer a mix of robust features and low fees.

Understanding Trading Platforms

A trading platform is a software system offered to investors and traders by financial institutions, such as brokerages and banks. They essentially enable investors and traders to place trades and monitor their accounts.

Platforms allow investors to open a variety of brokerage or trading accounts, including margin accounts, cash accounts, retirement accounts, and self-directed accounts. Through these accounts, traders can make buy and sell orders for stocks, bonds, exchange-traded funds (ETFs), and mutual funds among others.

Trading platforms often include other features that help investors make important investment decisions. These features can include real-time quotes and interactive charts along with a range of charting tools, streaming news feeds, and premium research. Platforms also may be tailored to specific markets, such as stocks, currencies, options, or futures markets.

Types of Trading Platforms

There are two types of trading platforms: commercial and proprietary platforms.

• Commercial Platforms: Commercial trading platforms are designed for a range of investors, including day traders and retail investors. These sites are easy to use and provide traders with useful features, such as real-time quotes, international news feeds, live, interactive charts, educational content, and research tools. Many popular sites are commercial platforms.
• Proprietary Platforms: These trading platforms are customized and developed by large brokerages and other financial institutions for themselves. Using proprietary platforms allows institutions to gain direct access to the markets, which gives them a competitive advantage. Since these platforms are designed for institutional use, they are not available to the public.

What to Look for in a Trading Platform

Features

Traders and investors should consider whether the features offered meet their trading needs when choosing a trading platform. Day traders and other short-term traders may require features like Level 2 quotes and access to market information, such as price levels, order size, and volume to assist them in timing their orders.

Traders may also need technical analysis tools such as live charts with a range of technical indicators. Options traders may need tools that are specifically designed to help them research, analyze, and test their trading strategies.

Fees

Fees are also important to consider when choosing a trading platform. For example, traders who employ scalping as a trading strategy will gravitate towards platforms with low fees.

Lower fees are generally always preferable but there may be trade-offs to consider. For example, low fees may not be advantageous if they translate to fewer or less powerful features.

Provider

Some trading platforms aren't connected to a specific intermediary or broker while others are only available when you work with a particular intermediary or broker. As a result, investors should consider carefully the reputation of the intermediary or broker before committing to a specific trading platform to execute trades and manage their accounts. Be sure a provider stands solidly behind all that a platform offers.

Requirements

Trading platforms may have specific requirements that must be met before you can open an account and/or trade. For example, day trading platforms may require that traders have at least $25,000 in equity in their accounts and be approved for margin trading. Options platforms may require that traders be approved to trade various types of options before they can use the trading platform.

Popular Trading Platforms

There are hundreds—if not thousands—of different trading platforms, including these four popular options:

• Interactive Brokers: Interactive Brokers is the most popular trading platform for professionals, with low fees and access to markets around the world.
• TradeStation: TradeStation is a popular trading platform for algorithmic traders who prefer to execute trading strategies using automated scripts developed with EasyLanguage.
• TD Ameritrade: TD Ameritrade is a popular broker for both traders and investors, especially following its acquisition of thinkorswim.
• Robinhood: Robinhood is a commission-free trading platform targeting millennials. It started off as a mobile app and now has a web interface as well. The platform makes money from several sources, from interest on cash in its accounts to selling order flow to large brokerages.

The most popular platform for many foreign exchange (forex) market participants is MetaTrader, which is a trading platform that interfaces with many different brokers. Its MQL scripting language has become a popular tool for those looking to automate their trading in currencies.

The Bottom Line

Trading platforms make it easier for people to invest their money and reach their goals. These portals are usually online, giving the individual freedom to choose to invest on their own or with the guidance of an investment professional. Choosing the right trading platform depends on how much capital you have, your needs and goals, and your experience. Make sure you do your due diligence and research before you commit to one.