Basic Facts about Online Stock Trading
Online stock trading has become a popular way of investing in the stock market because of its convenience and simplicity. What was once an arcane, cumbersome and sometimes mysterious process has been reduced to the simplicity of a mouse click.
The old-fashioned way of investing in the stock market involves opening an account with a traditional stock brokerage house. The brokerage house trades in the stock market on your behalf, either following your instructions and restrictions, or according to its own judgement if you prefer. In return, the stock brokerage house charges you an annual management fee, a percentage of each transaction conducted on your behalf and other fees such as an account inactivity charge.
The disadvantages of the traditional way of investing in the stock market are the delays in the execution of trades and the loss of control over investment decisions. The time it takes to communicate with a traditional broker may result in missed opportunities over investments that require immediate action. On the other hand, when decision-making is left entirely up to the broker, the individual investor relinquishes control and is exposed to errors in judgement on the part of the broker.
With trading online, all these weaknesses of the traditional system are sidestepped. You simply open an account with an online stock brokerage. After providing basic information about yourself and funding your account, you can start trading in minutes. You can fund your account by cheque or debit card. Trading is done by logging into your account where you can see share prices in real time. You decide which shares to buy or sell and instruct your online brokerage to execute the trade with a mouse click. Your online account provides you with up-to-date information about developments and trends in markets, industries and companies to guide you in making your investment decisions. Because you make all the decisions and issue all the instructions, control over your investments is in your hands at all times. You can impose limits on trades in your account. Provided your account has sufficient funds, there is no limit to the orders you can place.
Normally, it takes 3 days to settle a trade. Online trading is what is known as a “nominee service”. Shares are held in a pooled account electronically and no stock certificates are issued. If you wish to have stock certificates issued, a special charge is imposed by the online service.
You normally trade online during the working hours of the stock market. Your transactions are recorded in your online account which you can access at any time, just like an online bank account. Dividends are deposited in your account and you can withdraw funds whenever you wish. All information between you and your online broker is encrypted, so you are assured of full security all the time.
An online stock brokerage provides detailed and updated information on its web site. The brokerage is easy to contact for special information that is not usually covered in a web site. This makes information about online stock trading readily available, especially during these times of volatile stock market activity.
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