As with everything else these days, the stock market has gone online. If you can shop, pay bills, and do your banking online, why not invest too? Investing online is not as big of an ordeal as some people make it out to be. The key is to know what you want before you start.
When opening a new account, investors need to answer the regular questions, such as the type of account they want and how it will be funded. When selecting an account type the kind you choose will depend on whether or not the account is taxable or tax-deferred, and also whether it is for just you or you and someone else.
You will also have to decide whether your account will be cash or margin. A cash account means you are only able to place trades for investments with money in your account. A margin account gives you a credit line from your brokerage firm. You can also have a margin account with options, which means you are purchasing the right to buy and/or sell a stock at a specific price. Options are quite complicated and usually only purchased by traders with experience and large portfolios.
After choosing the type of account money must be deposited. The initial deposit can be sent to the firm by check or an automatic transfer from a bank account. Another option is transferring an account from a different brokerage firm, but the process is quite lengthy and can take weeks to complete.
If you are trying online investing for the first time, start small. Don’t put every penny of your life savings into an online account. A smaller sum is easier to handle and easier to keep track of. When you feel confident and are ready, then you can expand your online account.
Another good thing to do when investing online is to try and stay diversified, in other words, don’t concentrate all of your portfolio on just one thing, instead develop a well-balanced portfolio of stocks, bonds, and cash.
Many brokers will encourage you not to bail out on mutual funds. The main reason most investors are in mutual funds is that they don’t have the experience to make their own calls on stocks. They are also occupied with other things besides just watching the stock market. Keeping your mutual funds can be a wise decision instead of prematurely playing the market in individual stocks. Be cautious when studying mutual fund ratings though.
It is important to remember that online brokerage firms add fees and charges that need to be looked at closely. Before buying and selling large-scale stocks online, look at what the tax results are of such trading. The average online brokerage costs are lower than full-service brokers, but fees can still add up.
Remember that just because you are investing online, the Internet is not foolproof and you are bound to run into some problems. There will surely be times when you are unable to gain access to your account. Your connection could be down, the brokerage firms server could crash if trading is overly heavy, you could experience a software glitch, or you may be away from your computer when there is a major market move. Always be prepared for these things and keep in mind the available alternative trading options such as phone trading.
When investing online it is your responsibility to say as informed as possible. Don’t just settle for what you hear. Instead, do a little research on a company before investing in them. There are services that send you automatic e-mail messages over the news about your stock; take advantage of these. Remember in online investing everything is up to you and knowledge is power. Check out our guide to Investing Psychology 101 which will assist you in determining if now is the right time for you to start investing.