Online Stock Trading

What is Online Stock Trading?

This may be a elementary topic for many of you; however, for those who are new to trading stocks over the internet, online stock trading gives you the ability to buy and sell stocks using an online stock broker. Traditionally, you may be used to calling your broker and instructing him or her to place a trade for you. That is not necessary anymore, the advent of the internet allows you to cut the middle man out (Broker) and trade stocks online at your discretion.

As many of you saw when the internet bubble burst, many of you cannot trust your stock broker to make the right financial decisions for you. Most stock brokers are mere sales agents who are given a list of stocks from senior management and told to advise their clients to get into them. Online stock trading not only allows you place your own trades, but it also allows you to save a boat load on trading commissions and truly take control of you financial future.

Which Online Broker should I Use?

Picking an online stock broker seems like a trivial task, however, there are hundreds of them to choose so you need to be careful with who you trade with. Make sure you are dealing with a major player who has billions of assets under their belt. The last thing you need is for your broker to go bankrupt and have their stock delisted.

You should ask a prospective brokerage house a few key questions to help you make the best choice.

  • First, what is the minimum investment amount to start trading stocks online?

  • Second, ask the brokerage house if there are any inactivity fees for a lack of trading?

  • What are the trading commissions for the products (stocks, bonds, mutual funds, etc) you wish to trade online?

  • What type of trading help or guidance do you require? Some of the more expensive brokers like Fidelity offer a lot in terms of market research and telephone support. You may be okay with their marginally higher commission structure for the peace of mind.

  • What other types of businesses does this broker run? This is an important question because of the fact that you want to make sure that your broker is not involved in too many risky lines of business which could affect your ability to get your money back from that broker in the event of a disaster in the financial markets.

Some of the best brokers for online stock trading are:

  1. Fidelity - Fidelity has trillions in assets under management and is as solid of a company as they come. Online stock trading with Fidelity may be a little more expensive than the other brokers; however, they have great customer service and a nice trading interface. They offer you the ability to invest in any type of investment vehicle you would want ranging from stocks, bonds, options, CDs, etc.

  2. TDAmeritrade - TDAmeritrade is another solid, trusty worth online broker who is a large amount of capitalization. They have a low commission structure for stocks, options, and bonds and they offer a lot of free gadgets for their customers to use. They have decent customer service but not as good as Fidelity. TDAmeritrade's online stock trading interface has given me technical issues in the past so this is something to be aware of.

  3. E*TRADE - I would rate E*TRADE on the same scale as TDAmeritrade. They have a great commission structure and have very little in the way of technical issues which would prevent you from placing an online trade. Not many gadgets, just your simple, yet reliable order entry system.

  4. Scottrade - Scottrade is a great trading platform with very low commissions. They have great customer service and a reliable order entry interface. They have more local branches than any other online broker and allow you to trade stocks, bonds, options, mutual funds, and bond products.

Opening & Depositing Money into your online brokerage account

You can open your brokerage account in a couple of ways. First, you can ask the broker to send you an application to open an account. Fill it out and send the forms back with a check to fund the account. Another option is to fill out the online form and then electronically fund the account by funding through an ACH transfer (note: this will require that you provide you bank details to the brokerage house so that they can link up with your personal bank account) I know this may be a bit unsettling for you especially if your new to online stock trading, however, that is why you need to go with the best brokers who employ the best measures of security on their website.

You will be asked to provide information on the application regarding your past online stock trading history for different types of trading vehicles, such as stocks, bonds, options, etc. The application asks for this information to assess your level of expertise and to determine which products you will be allowed to trade. For example, if you plan on trading risky options spreads without any past history of doing so, the brokerage house will protect you against yourself by revoking your access to doing that. It is also protecting their assets in case you lose more money than you have.

If you ask for a margin account, there will be a separate section for that as well.

Fraudulent Stock Information

The web is a great place to acquire information, however, be aware of fraudulent information. Be aware of message boards, newsletters, and emails pumping a stock which is going to be the next Microsoft. These fraudsters will attempt to pump a stock, only to sell it themselves. They create an artificial demand for a stock which drives the price higher and they sell their shares out to the general public. Once that artificial demand goes away, the stock drops like a rock. Always do your own due diligence when you are trading stocks online and please do it from a reputable source.

Online stock trading may seem a bit daunting for those of you new to it but it allows you to take your financial future into your own hands. Good luck!

Tim Ord
Ord Oracle

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