The advent of the Internet has brought some wondrous things to our front rooms. One of the best is online trading in the stock market
The primary reasons are 1) speed of execution and 2) transaction costs. Once you click your mouse button, your transaction can be completed in a matter of seconds for less than 10 dollars per trade.
Before you select an online broker (actually an online brokerage firm since everything is automated and you will have no need to speak to an actual broker), do some research and find a company that is right for you. Consider the transaction price, types of investments you plan to make, reliability of brokerage firm, etc. In other words – do your homework.
Here are some things to consider when selecting an online brokerage firm:
·Understand that most likely you are not linked directly to the market through your home computer and that the click of your mouse does not instantly execute trades or cancel orders. Your order goes through your brokerage firm electronically and is placed in the order received. Your brokerage firm is required to find the best price for you. Even though the order goes through the brokerage firm, a market order will be executed in a matter of seconds. Be careful with market orders in a fast moving market – use a limit order instead to minimize your risk.
·Determine if the stock quotes and account updates you receive are real-time or delayed. Even the quotes you see on the ticket on CNBC are delayed. Real-time quotes are provided by most brokerages – some for free, some for a fee.
·Check the on-line broker’s ability to get the best price for investors. Most brokerage firms provide this information on their website. Again, you have to read through the site and request information. You want to find the best deal that suits your requirements.
·Receive information from the firm to substantiate any advertised claims concerning the ease and speed of online trading. There are many online firms that have specific securities that they specialize in – some are for penny stocks, some only trade the major markets, and some are for overseas, some for options. Do your Due Diligence and find the one best for you.
·Obtain information about entering and canceling orders (market, limit, and stop loss), and the details and risks of margin accounts (borrowing to buy stocks). Margin accounts are not for the novice. Basically it is a very expensive loan that can be called at the whim of the brokerage firm. They all have different rules about margin – best to not even go here.
·Get information from the firm about significant website outages, delays, and other interruptions that may affect your ability to execute trades. Make sure that the firm has an alternative way to execute trades. Most will allow phone calls directly to brokers for no additional fees if there is a computer problem.
·Review the firm’s privacy and security policies. Determine if your name will be used for mailing lists or other promotional activities by the firm or any other party. You want to steer clear of mailing lists – unless you like receiving spam. Most of the major firms don’t sell your info and the only email that you receive from them is your monthly statement information.
·Receive clear information about sales commissions, transaction fees, and conditions that apply to any advertised discount on commissions. Watch out for those hidden fees – some charge a “per share” fee for low cap stocks which can add hundreds of dollars to your transaction. Read the fine print.
·Know how to contact a customer service representative if problems occur. Request prompt attention and fair consideration. Be sure to keep good records to substantiate any problems that may occur. A company’s 800-number is usually listed on the front page or the contact page of their web site. Email contact is also provided and they usually have an answer for you in one or two business days.
·Contact your local securities division to verify the registration status and disciplinary history (if any) of the online brokerage firm, or to file a complaint, if appropriate. You can also go to the Securities and Exchange Commission web page for additional information – www.sec.gov
Make an informed decision and make some money with online investing.
About the Author
Larry Westfall is the owner of DIY Investing - http://www.pennystockebook.com |
