How to Get Started With Online Trading

Buy strength and sell weakness

Online trading provides the ability to research and trade securities such as those on the foreign exchange market, commodity futures, stocks and bonds and option strategies through an automated system. Traders who use such systems find them convenient and inexpensive. Starting such an account is relatively simple after some initial research.

Instructions

1. Choose your broker based on the type of security you wish to trade. Different brokers have different areas of expertise. Traders often trade stocks, bonds and options with one broker. Most traders use a separate broker for futures and a separate broker for the foreign exchange market. Decide your area of concentration. Consider using two brokers in case one broker's systems fail.

2. Examine in detail the cost structure of every broker. Know that some brokers reward frequent traders and reduce fees for funds kept in customer accounts. Beware of brokers that do not advertise SIPC insurance, which is a federal program to safeguard your account from fraud.

3. Study the online platform the broker uses for trades. Trade platforms can be very simple or very complex. Some brokers offer special modeling platforms for options trading and futures at no extra cost. Trade securities carefully. Understand that if you mistakenly enter a trade, you are responsible for the trade until it is corrected. At a minimum, you will incur the cost of another buy and sell.

4. Investigate the free research that comes with online trading. Know if it is the kind of information you need. Learn whether the broker provides online charting for technical analysis as well as fundamental analysis of publicly traded companies.

5. Choose a broker only if in an emergency, you can also enter trades (for an additional fee) with a broker. Use this feature if your Internet service fails, you are traveling or the broker's system fails. (This happens infrequently.) Open the account online by filling out the online form. You will need to offer some personal information, including a Social Security number, and create a user name and password. Then fund the account. It will normally take two to three days for the account to be funded and your account reviewed and processed. After that time, you will be free to trade.

Tips & Warnings

• There are many online reviews of different brokerage accounts. Choose one with the most features for the type of trading you intend to do.

• Practice any trading strategy before investing real dollars. Most online accounts have such capability. Practice under bull and bear conditions.

References

• Commodity Trading Futures Commission
• Discussion of Online Trading
• Review of Online Brokers

Resources

• SIPC Insurance Homepage