Everything you need to know about online stock trading.

Online Stock Trading Guide

The Pros to Online Stock Trading

Many people would have you believe that the benefits to trading stock via the Internet are unlimited.  Be mindful, however, of "salesmen's puff".  The pros to trading on the Internet can be determined, regardless of the different ways that they are 'dressed up', and, essentially, fall into the following:

1. Low commissions

Before the days when it was possible to trade online, anyone who wanted to invest in the stock market(s) needed to retain the services of a broker – something that still exists today, regardless of the fact of whether or not you are trading online.  As an established profession, brokers in the real world (as opposed to brokers in the virtual world online) were able to charge their customers fairly large commissions on any trade done. 

Consequently, unless you were an investor trading in a large volume of stock, or someone else (such as a mutual fund) was trading collectively with others on your and their behalf, the net cost of this commission meant that it was not economically viable for you to trade small volumes of shares.
The advent of the Internet changed all of this.  It was, and is, now possible to offer customers online trading services where the commission could be much lower (as overheads, etc. are lower) and the broker would still end up making money.  Indeed, today it possible to trade via the Internet for standard commission fees of around $7 per trade.

2. Information

As you may imagine, information is King when it comes to investing in the stock market.  Knowing just the right moment when to buy stock or when to sell stock is what will set you apart as a successful trader from the millions of ordinary traders or, even, those traders who manage to lose money.  Having said that, in order to get your hands on this information you either need to (a) find it yourself, or (b) have it provided to you, or (c) experience some pure luck – if not a combination of all three.

In this regard, along with the ability to connect to the Internet to trade in stock, you can also use your computer function capabilities to run online stock trading software programs.  In short, a reputable stock trading software program will provide you with the ability to create (i) technical charts, such as bar charts and line charts, (ii) technical analysis indicators, such as the Bollinger band, and (iii) real time stock trading prices.  You can then collect the information and use this to help you make a decision of whether or not to invest in a particular stock.

In addition to making use of a reputable stock trading software package, you can also make use of the Internet itself to provide you with lots of useful information in relation to your chosen investment stock.  You can do this by:

  • looking at the company’s website.
  • doing a search engine search on the company to see if there is anything you need to know.
  • doing a news search to keep abreast of the latest news relating to the stock.
  • sign up for RSS feeds, which will provide you with updates on the company as and when they become available.

Use of all of these tools should help to ensure that you remain a well informed investor.

3. No interference – free to invest

One major advantage that trading via the Internet has is the fact that you cannot be stopped or dissuaded from investing in a particular stock.  In other words, if you like the look of a stock, you simply log-on to your online brokerage account and instruct your broker to purchase the stock in question.  However, if you trade in the real world, using a live broker, trading may not be that easy.  You may find that when you phone up an order to buy and/or sell a stock, your broker tries to persuade you not to take the course of action that you are about to take, or point blank refuses to take the order – believing they know better than you do.

Although the above can apply to a single buy/sell order, it can also apply to your chosen investment portfolio.  For example, if you want to invest in penny stocks you may well find that real life brokers refuses to act for you.  Trade via the internet, however, and you’ll likely not find this a barrier at all.  In short, you have control over your chosen investment portfolio.

4. 24/7/365

If you didn’t already know it, the Internet never closes, nor does it shut down to sleep, rest or take a day off.  By trading online you can move your investments around the world 24/7/365, thereby making sure you take full advantage of what is going on in the world as it happens!  Compare that to a real life broker and unless you have brokers in every country in the world where you want to trade you’ll soon see that online trading provides you with far more investment opportunities than a real life broker could possibly hope to give you.

5. Right here, right now!

In, possibly, no other industry could the importance of “time is of the essence” be more explicit than stock trading.  The matter of a few seconds really can make the difference between making a profit, a loss or a huge loss.  And, if you ever doubt this, think back to the events of 1929 and 1986 (stock market crashes).

Given that this is the case, which scenario do you believe is more beneficial – the one where you have to ring a broker and ask him to buy/sell a stock, who then has to check the bid/ask price with a trader and revert back to you for authorisation, or the one where you log-on to the Internet and send a sell order instantaneously?  Surely, with time being such a crucial factor, you need to use a method that is as instantaneous as possible, and the Internet brings you far nearer to achieving this than any telephone instruction can!

6. No investment threshold

The final benefit that Internet stock trading has over real life stock trading is the fact that unlike the case when you use a real life broker, when you trade online you do not normally have to give the broker an order to purchase a minimum number of shares (for example, 500 shares) but, rather, can trade as many or as few shares as you want.  Currently, however, most online brokerages do require you to open a stock broking account with a minimum balance of $500.


Next: The Cons to Online Stock Trading