Online trading is one of the hottest new investment trends in recent years. More and more people are signing up with online brokers in order to get in on this investment strategy. But to a beginner, much of the terminology can be confusing and it’s hard to know where to start. Check out this simple guide to buying stocks and online trading for answers to your questions.
Where To Buy Stocks
With online trading, it’s easier than ever to buy the stocks you want. You no longer have to call up your broker and wait for them to relay the message through a long series of involved parties (though that’s still an option). Things move at a much faster pace today thanks to the powers of the Internet, so buying stocks can be as simple and easy as a few clicks of the mouse.
Most online brokers offer the option to buy stocks directly through their website. When you work with major companies like E-Trade, Charles Schwab, Ameritrade and Datek, you’ll be able to snatch up shares easily and quickly. Be aware, however, that there are often some additional costs involved with each purchase, so plan out your stock-buying moves carefully. (Also read: Basic Things To Know About Stocks.)
How Online Trading Works
Online trading is a fast-paced and exciting world that’s very easy to get caught up in. Basically, online trading starts when you buy your first shares of stock. Those shares become commodities which you can trade with other stockholders.
When you first create an account with an online broker, you’ll choose what type of account you want. This can be funded with cash or a line of credit. In many cases, you can set up your account like a joint account or retirement account if you wish.
Once the account is set up, you can begin buying and selling stocks. The following are the main types of trading orders you can set up through an online broker:
- Market order: A trade that takes place at the current market price of the stock.
- Limit order: A trade that takes place at an equal or better price than you specify. If that price isn’t reached, the trade doesn’t go through.
- Stop order: A trade that goes through when the price falls below a set point. The order goes through at the market price.
- Stop limit order: A trade that works like a stop order except that it goes through at the price you set rather than the market price.
- Trailing stop order: A trade that works like a stop order except that the selling price is moving rather than fixed. The parameter for when a trade can take place is set in either points or a percentage.
One of the key attractions with online trading is the fact that individuals have so much control over the transactions that take place. Decisions can be made at any time, day or night, and the results are fast.
Tips For Success
Although online trading is easy to get the hang of, it’s not as easy to actually be successful at online trading. There are many factors which need to go into each of your online trading decisions. Use these tips to help increase your chances of success when buying and selling stocks online:
- Find an online brokerage with lots of services: Today, it’s more common for online brokers to offer additional services that make them more like a full-service broker than a discount broker. That means they provide services like customer support, research data, company news releases, earning reports and market commentary. Choosing an online broker with lots of services (and then taking advantage of those features) will allow you to make smarter moves in the market.
- Look carefully at broker fees: If you plan to trade a lot, then you’ll want to ensure that the online broker you choose has a lower fee per trade. Other fees can be charged for account inactivity. It’s important to factor these and any other additional charges into the cost of using the site since it will affect your profits.
- Assess your risk: An important part of responsible and successful online trading is determining how much risk you can sustain. It’s helpful to set parameters on how often you want to trade and how much you want to buy or sell in a day, week or month.
- Set investment goals: It’s critical to determine what your investment goals are from the outset. Do you want to make money in the short term or are you willing to wait for a longer time to make money on investments over a period of months or years? Answering these questions will help you devise a successful online trading strategy.
Online trading can be a great way to get involved in investing, but it’s critical that you know what you’re getting yourself into. It’s a good idea to see a financial adviser if you’re a beginner to online trading. They can help you create a plan for success and offer advice about the legal and financial implications of buying and selling stocks online.