About Online Stock Trading

Online stock trading is a method of buying and selling stocks on the Internet. It differs from traditional stock trading in that a stock broker does not have to be contacted in order to complete a transaction. Rather, the investor makes trades through the use of an online brokerage firm, resulting in the investor paying a smaller dollar amount in broker commissions.

Advantages and Disadvantage

Seizing control of one's own investment portfolio is a major advantage of online trading, as well as the speed of conducting transactions. Since the Internet operates around the clock, there is no need to wait for a stock market to open to capitalize on an investment opportunity. Conversely, without the guidance of a "live" investment professional, many uneducated investors do not take the time to "learn the ropes," resulting in a substantial loss of money.

Getting Started

Participating in online stock trading requires the investor to have access to a computer with an Internet connection. Contacting an online broker to set up an account is the next step, followed by downloading the broker's software package, which will guide the investor through the step-by-step process of completing a trade.

Misconceptions

Many investors have the notion that online stock trading is a way to get rich quickly. In reality, according to the Online Stock Trading Guide (see References), about 80 percent of investors lose money from the onset, in large part because they do not possess the necessary expertise or investment experience to be successful. Investors just starting out would be well-advised to employ the services of a traditional stock broker, or take part in an online stock investing course.

Considerations

Investment fees are an important consideration when choosing an online broker. These will vary according to which online brokerage house is used, ranging from $7 to $10 per transaction on average, with some charging as little as $1.99. Other factors to consider include the speed of processing transactions and the level and availability of advisory and customer service support.

Warning

Because trading stocks online is so readily available, it can impact investor psychology as gambling can. Conducting transactions online can take only seconds, so the temptation to continue trading despite losing money may occur. Knowing one's financial situation is imperative before beginning, and the prudent investor will set strict limits on how much money can be put at risk.

References

• Online Stock Trading Guide