How to Buy Stocks Online
Written by admin on March 10th, 2009The growth of the internet over the past several years has allowed investors to buy stocks online, saving them lots of commission costs along the way. There are an endless number of internet brokers out there that offer discount trades or in some cases free trades. Cutting down on commission costs can help a wide range of investors including – day traders, swing traders, long term investors, option traders and more. While low commission rates can help you save money, there are also some potential downfalls if you buy stocks online compared with traditional methods.
Online discount brokers can offer much lower commissions on trades because they take out the middleman – the stock broker. By removing the stock broker, you are offered much cheaper commissions but also lose out on several critical services. That is why it is extremely important to educate yourself on the terminology of placing trades that will put you in control of your investments.
Here is a list of tips and terms you should review before you buy stocks online -
- Stock Symbol – Be sure to check the stock symbol of the security you are looking to buy or sell. Sites like Yahoo! Finance are excellent places to double check a ticker symbol. Remember that you are responsible for entering in your trade when you buy stocks online – so nobody is double checking your work except for you.
- Action – Do you want to buy or sell a particular stock? If you are looking to open a new position on a stock, then you would enter a BUY order. Likewise, if you want to close out of a current stock in your portfolio – then you would enter a SELL Order. Make sure that you really intend to close out of a position when selling out of your position.
- Quantity – The quantity of order refers to the number of shares you would like to purchase or sell.
- Type – There are many different types of trades, but the two most common options are market and limit orders. Depending on your discount broker, they may charge more for a limit order as they are often harder to fill. When you buy stocks online, be careful placing market orders – especially with highly volatile stocks. While market orders may have less commission costs, you have no control over what you will pay for a stock or what you will sell the stock for.
- Length – The length of the trade tells your online broker how long you want to leave your order open for if it is not immediate filled. This is typically only used for a limit order that does not get filled at the time you place the trade. One option is to set the limit as Day, which means that your order will automatically be canceled at the end of the trading day if it is not filled. Another popular option is placing a Good Till Canceled order which leaves your transaction open until it is filled or until you cancel it.
- Type of Trade – Depending on your account setup, you can place a cash trade which requires you to have all available cash in your account to fund the trade at the time of the trade. Another option is to place a margin trade (if approved to trade on margin) which allows you to basically borrow money from your broker to buy stocks online. This can be very risky trading with money that is not yours – so be careful!
- Delayed Quotes – Depending on your online broker and account, you may not receive real-time quotes when reviewing a stock price. Check with your broker to determine if you have real-time quotes available before placing any trades. You want to be 100% sure in the stock price before you choose to buy or sell.
- Due Diligence – You should always complete proper due diligence on a company before placing any type of trade in the stock market. When you buy stocks online, this is even more important. You no longer have a live stock broker to directly speak with before placing your order. Unless you call a representative from your broker, you are on your own – so do your homework!
- Double Check Trade – Write down your trade or use a spreadsheet that includes commission, etc. before placing your order. While most online brokers will require you to verify your trade before it is placed – there is still room for mistake. If you know how much your trade will cost before hand, you are more likely to catch any mistakes or typos when placing your order.
When you buy stocks online, you are in complete control of your trade. It can be an exhilarating and powerful feeling, but you need to remember the basics before you start. Remember that you are in control and only have yourself to blame if the trade is entered or placed incorrectly. You are receiving a discount on your commissions by using these online brokers. That is how you can receive these cheap trades. You need to be confident and knowledgeable before placing trades so that you can concentrate on making money instead of making a mistake when placing an order.
Remember it is your money and your responsibility when you buy stocks online – as well as when you sell stocks online. You are responsible for your own actions!