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January 22nd, 2010

Day Trade Part-Time by Szwec & Cook

Learn How to Invest in Stock – Online Trading

Jeanette Szwec

Author, Day Trade Part-Time (John Wiley and Sons)

The explosion of the Internet has brought about many changes in the way that we conduct our lives and our personal business. We pay our bills online, shop online, bank online, and even date online! Part of learning how to invest in stock is learning how to buy and sell stocks online. We need to learn about online stock brokers and how they differ.

Traders want the ability to look at their accounts whenever they want to, and to manage their own purchases and sales. Brokers like having the ability to take orders over the Internet, as opposed to the telephone. Most brokers and brokerage houses now offer online trading to their clients. In addition, fees and commissions are often lower when trading online than when using a broker. So how do you get started finding the right online stock broker for your needs?

First, do a Google search for online stock brokers. You will see a number that seem familiar. Take down their names and their website addresses. Are the names familiar? Familiar is good if you are a beginner. The largest online brokers have advertised extensively and some of the names should seem familiar.

If you are an advanced trader, there are other reputable firms available that you may not have heard of before. They are known around professional traders but are not familiar to beginners (MB Trader, for example). These sophisticated trading platforms are for your future trading needs and you will not be using them now if you are a beginner.

Look now for companies that are familiar, like Schwab, Etrade, Scottrade, Ameritrade or another name that sounds familiar. It is also a good idea to go with an online brokerage company that has been around for a while. There are plenty of companies that have been in business for at least 10 years, have developed a reputation (good or bad), and can be researched.

Next make a list of questions that you will use to evaluate how the brokers meet your needs: Among this list could be the following:

How can I trade: internet, automatic phone trading, using a live broker?
What is the cost of those different trading methods? Some online brokers will charge double if you talk to a human. Truth is, you will occasionally need to trade by talking to a human or at least an automated phone interface. Your internet may go down, your computer may not be accessible, or something odd will occur. You need to know what penalty you will pay when you talk to a human.
How will you receive your reports? Are the statements online only or will you receive a paper copy each month?
What research tools are available online at their site and what is the cost for using those tools?
Can you short stock? This is a little advanced, but you will become more advanced and you need to know whether they allow this function.
Can you invest in mutual funds? If so, which ones are available?
How can you deposit money in the account?
How can you withdraw money from the account?

Take your list of questions and start your research. Call them and find out how difficult it is to reach a human. You will not always have the ability to get online to make a trade. You need to be sure that you can call and speak with a broker if this is the case, using the online broker. This is true whether you are an advanced trader or a beginner.

If you are trying to trade a stock and something goes wrong, you might need to reach a human quickly. If your call goes to an automated phone answering system that puts you on hold for a long time, this could be a huge problem in the future. Go to their websites and see how easy it is to navigate. Some systems are much easier than others.

If you only plan to do a few trades and just want to get your feet wet, then you might consider getting an online trading account with your bank. BAC, for example, makes it very easy for someone to trade a few stocks if they already have an account there. This could be a quick way of getting started and having money instantly available to invest.

While online trading is great, there are some drawbacks. If you are new to investing, having the ability to actually speak with a broker can be quite beneficial. In addition, you need the ability to do some stock research. Some of the online brokers may charge a little more per trade, but they might give you functionality that is not available at the less expensive online brokers.

Often, brokers that started out as full service brokers have more tools and research available to their clients. Charles Schwab, for example, has extensive online research. Their prices for trades may be a slightly higher than those charged by the deep discount brokers, but you might want the extra research services they offer and be willing to pay the slight up-charge.

If you are not stock market savvy, online trading may be a dangerous thing for you. If this is the case, make sure that you learn as much as you can about trading stocks before you start trading online.

Again, online trading is efficient and even exciting. Do your own research before choosing a broker, get an account, try them out, and confirm that the system they have works for you. Getting your first account does not marry you to them. If their service is not adequate to meet your needs, repeat this process and find one that is perfect for you.

Now for a personal recommendation:

As a professional trader, I had one resource that I wouldn’t be without. That is Investor’s Business Daily. The link below is an affiliate link – that means I get a few pennies if you order thru that link. I don’t care if you buy thru that link or go directly to their site. It is the best resource for stock investors and for anyone interested in a hype free, systematic approach to investing in stock. Buy a copy from a local news stand and get familiar with it. It is outstanding.

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