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Investing Stocks Online 2

You are investing stocks online in fast-moving markets. The potential for quick and big profits is real. So is the risk for big losses. Online stock market investing for short term gain is often called speculation. You are buying/selling shares frequently within a short range of time, looking to benefit from share price increases and decreases. Investing wisely online in speculative markets is about adhering to these eight rules of online investing.

  • 1. Invest in regulated and familiar markets. NASDAQ, NYSE, LSE, Amex and many other international and regional stock markets are regulated by trading rules designed to protect individual investors from scams and fraudulent trading schemes. There are many small profitable private exchanges but as a rule, stick to stock markets that are well regulated, well known and have a history of reputable operation.
  • 2. Online trading is very quick - your orders are often transacted if not within the day often within the hour. Distinguish between 'online trading' and 'online investing'. 'Investing' takes time and diligent research/decision making.
  • 3. Use online tools provided by your online broker to place limit orders (to buy/sell at a set price) not market orders (buy or sell at market price) so you can control the price you buy shares. This may mean you a locked out of a fluctuating market at certain times (you can potentially forgo some profits) but in the long run it will protect you against unexpected lows that will inevitably occur as bear market creates a negative herd mentality.
  • 4. Online trade orders are quick compared to phone/fax orders. But it is not instantaneous as there are potential for 'choke points' which slows down the process. A slow connection, hardware failure on both ends and the volume of online traffic can all slow down or even block your trade orders. Have a backup plan incase you need to enact an emergency order/cancellation. This includes having ready access to a telephone number or automated messaging service to place trading instructions.
  • 5. Always double check online orders and cancellations. Online brokers can often send automated emails to confirm the execution of stock trading instructions. If they don't you need to follow up by phone, email or fax to check that orders have gone through. This reduces the likelihood of double orders (which you'll have to pay for!) or failure to cancel orders (which may take you into the trading red!).
  • 6. If you purchase shares via cash account online, these purchases must be paid for before you can sell those shares. Free-riding (sell shares without paying for them) is illegal and hefty penalties apply. Beware of payment lags - i.e. payment transactions can take time to process. Making sure payments go through promptly can be vital if you need to transact your shares quickly due to a change in the market.
  • 7. Always read fine print on your online trading account. For example, if you signed up to a margin trading account (i.e. borrow money to buy shares) to invest online, your shares can be sold off without your permission with margin calls. You can be made to pay for the difference (the loss) without even having a say in when to sell.
  • 8. Know your rights as an online stock market investor. Even though you are dealing with online brokers, you have rights as an individual consumer. If an online broker is not meeting any guaranteed conditions (fees, commissions, benefits) you can complain to the National Association of Security Dealers or your state securities administrator. Alternatively, seek help from advocate groups like the Office of Investor Education and Advocacy at the SEC.

Follow these 8 rules of online line investing means you are well on the way to investing wisely online. Another important tip is of course to keep up with your online security so that while you are investing online, your computer is not susceptible to attacks which could comprise your personal information. Setting up online investing account is like setting up bank accounts therefore you need to keep up your online IT security. Following these rules and compliment them with traditional stock market investment rules including having a defined investment strategy, taking steps to minimize risks and not succumbing to greed/fear. In no time, you can be a successful in investing stocks online and blitzing the online stock market investing in no time!