An Introduction to Online Trading

Online trading has become the standard method for buying and selling stocks for many people, especially those who have only gotten into the market since the rise of the Internet. The ease and rapidity of online trading allow investors to make decisions regarding stock trading in a manner that forgoes the careful calculation and deliberate analysis of data that had been the standard trading methodology.

Online Brokers

Online trading is not the same thing as trading without a broker. Registering with an online broker is, therefore, the first step in getting involved in trading stocks from the comfort of your living room or office. The most popular online brokers include E-Trade, Ameritrade and Charles Schwab, but there are many others from which to choose. The use of a online broker is necessary for the proper management of the both the money and the stock in your account.

Minimum Requirements

Most online brokerages require that investors keep a minimum investment before they can begin trading on the stock market. The minimum amount required to open an account will vary from broker to broker. Once this amount has been deposited and you have conducted your first online trade, many brokerages will then insist upon your keeping a minimum balance in the account, although it is possible to find some online brokers that do not have this minimum requirement.

Trading Fees

Online traders use their accounts for a variety of different trading methodologies. "Daytrader" is the name given to those who will be trading stocks on perhaps a daily basis. Others, however, may just buy one or two stocks and hold on to them for a long period of time. Online brokers should be checked for fees related to making numerous trades, as well as fees related to account inactivity. Depending on the type of trader you foresee yourself becoming, determine what kinds of fees the broker enacts.

Expert Advice

One fee that may be avoidable is an extra charge for getting expert advice. Some online brokers do not even offer expert insight, and are usually the most inexpensive to deal with. On the other hand, you may be saving money in fees but losing money by investing in unwise stock choices. It may be worth the extra fees to get statistical analysis of the kind you cannot get on your own.

Other Services

Some brokers allow you to do many more things than simply buying and selling stocks. The bigger and better-known online trading sites are actually more like banks, offering such services as mortgage loans, credit and debit cards, money market funds and even the potential for investing in bonds and futures trading.

Benefits

The biggest benefit of online trading over traditional stock trading is that it can be done with real-time knowledge of prices. Most people are familiar with those old-time stock tickers that produced ticker tape; the stock prices those tickers produced were usually around 15 minutes old. Today's online trading can be done almost instantaneously, using stock prices that are as up-to-date as possible.

Warning

Online trading is not without its pitfalls. Among the dangers online traders should be aware of are such scams as fraudulent IPOs that trade on investors' desire to get in on the ground floor of a potentially hugely successful company. The most common pitfall of online trading takes advantage of the very medium itself. A scam known as "pump and dump" is run by talking up certain stocks on Internet message boards and in chat rooms that serve to run up the price of a stock. Once the scammers dump the stock for a profit and quite pumping it up, the price falls again, and regular investors lose money.