Investing online
Investing online, or self-directed investing, has become the norm for individual
investors and
traders over the past decade with many, if not all
brokers now offering online services with unique
trading platforms.
[
edit]Overview
In the past, investors had to call up their brokers and place an order on the telephone. The broker would then enter the order in their system which was linked to
trading floors and exchanges.
With the advent of the
internet, investors can now enter orders directly online, or even trade with other investors via
electronic communication networks (ECN). Some orders entered online are still
routed through the broker allowing agents to approve or monitor the trades. This step assists in the protection of both the client and brokerage firm from unlawful or incorrect trades which could affect the client’s portfolio or the broker’s license.
Online brokers are most often referred to as
discount brokers, due to their lower fees as opposed to full service brokers who also give advice to clients.
Before choosing to invest or trade online it is important for investors to research the online brokers that they plan to employ, assuring that they are licensed within their state or provincial jurisdiction. This step will help to protect investors from falling victim to unlawful or illegal securities schemes (e.g.
Boiler Room scams). The USA Federal Government provides practical tips to avoid investment scams via their OnGuard Online website. One tip is "Don't believe everything you read in online newsletters, investing blogs, or bulletin boards. Fraud artists often float false information and "hot tips" as part of their efforts to rip-off investors or manipulate the market for a particular security." They also advise that one "Turn to unbiased sources when researching investments, such as the U.S. Securities and Exchange Commission (via their
EDGAR database), your state securities regulator, and securities industry self-regulatory organizations (including the
Financial Industry Regulatory Authority (FINRA),
Amex, and
Nasdaq)."
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Investors must also fully understand the potential risks of investing without the help of a trained Stock Broker or Investment Advisor. These professionals are experienced both in trade and education and forgoing their advice could be costly. For this reason, most online brokers offer a number of investment tools.
Once the above two steps are complete it is dually important to research the
sector, business and
financial statements of each company whose stock they plan to purchase. This, along with
diversification and basic
portfolio theory, will assist to mitigate some of the risks associated with the
volatility in both the stocks and the
stock markets.
Once investors have chosen an online brokerage that best suits their needs, they will be provided a trading platform. This platform acts as the hub, allowing investors to purchase and sell
securities(
fixed income and
equities),
options,
mutual funds, and
foreign exchange. Included with the platform are tools to track and monitor securities, portfolios and
indices, as well as research tools, real-time streaming quotes and up-to-date news releases; all of which are necessary to trade profitably. Often, more robust research tools are available such as full, in-depth analyst reports and analysis, and customized
backtesting and
screeners to see how particular investment strategies would have been realized during different historical periods.
Some of the popular online brokers include:
E*Trade,
Scottrade,
TD Ameritrade, and
Fidelity.
Schwab is an example of a hybrid broker combining a traditional, brick-and-mortar brokerage house with discounted trading online, with the usual benefits of both available to customers.
Commissions vary from broker to broker, depending on the services included with the account. Some lesser known online brokers are Forex, Interactive Brokers, Lightspeed, Marsco, optionsXpress and Zecco.
[
edit]References
This article does not
cite any
references or sources.
Please help
improve this article by adding citations to
reliable sources. Unsourced material may be
challenged and
removed. (June 2010)
^ OnGuard Online - Online Investing
[
edit]External links
Addressing the risks in online stockbroking - UK FSA (Financial Services Authority)
EDGAR database - U.S Securities and Exchange Commission
Categories:
Investment