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Investing Online

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Investing Online

Get a taste of what it feels like to be a professional stock trader — on the Net. Using Internet-based stock brokerage services like E*Trade, you can check out up-to-date graphs of financial portfolios, obtain quotes on stocks, get financial information on publicly held companies and execute securities trades, all without ever talking to a broker.

What is it about these services that’s turning even novice investors into fanatics? Two things: Virtually anyone can log on and start trading, using a computer, modem and Internet access account. For some people, web-based brokerages offer a less intimidating environment for discovering how to make their money grow. Without having to stumble over obscure financial terms, beginners can proceed at their own pace.

Second, trading electronically provides investors with an opportunity to save money on commissions, while making money with their stock picks (they hope). Commissions are deeply discounted — fees range from $10 to $40 per trade.

Online brokerages have to meet the same requirements traditional firms do — they must be registered with the National Association of Securities Dealers (NASD) and the Securities Investor Protection Corporation (SIPC), which safeguards customer securities up to $500,000. The Securities and Exchange Commission (SEC), a body overseeing public investment activities, approves of online brokerage services, though it warns investors to consider all offers with skepticism and to avoid investments offered anonymously online. That means you can feel comfortable using services like Accutrade, Ceres Interactive, eBroker and The Net Investor; but steer clear of unlicensed individuals.

If you’re tempted to start trading in cyberspace, keep in mind that if financial advice is what you want, trading online is probably not for you. These brokerages manage to keep commissions low because they pay relatively little overhead to run a web site. It’s also quite costly to provide financial advice to individuals, so you’re charged accordingly if you have the urge to hear a human voice during the course of your transaction.

Getting up to speed

So you’re ready to trade securities on the web? Here are some guidelines for deciding on an online brokerage:

Web-based trading services are offered by familiar retail giants such as Charles Schwab, Fidelity and Quick & Reilly, as well as newer companies like E*Trade and Lombard. You won’t need any special software.

Most web sites offer a demo; try the services at several sites to compare features and ease of use. Once you’ve chosen one you like, you have to open an account. The service then assigns you a user name and password. Most sites ensure privacy with something called the Secure Socket Layer (SSL) protocol, protecting information as it travels between your browser and the brokerage’s site; it’s sent in an encrypted format, as opposed to regular email, which can be more accessible to outsiders.

When you log on to the service, you’ll be able to retrieve information about your account, get quotes on different stocks and execute trades. Quotes are usually delayed by 15 to 20 minutes, but you can almost always get a real-time quote when you are about to place a trade. You can place the same types of orders online that you can with a traditional broker. In addition to buying and selling stocks at the market price, you’re able to place stop/limit orders at most services, and some let you trade futures and options as well. Don’t neglect the fine print: Prices vary with different types of trades.

To assure you that the Office Automation system was actually processed, some services automatically send an email message after you enter your request. Printed confirmation is also mailed as proof of the transaction. As with traditional brokerages, you are required to pay for the securities within three days.

Traffic on Easy Street

Technical limitations can be a stumbling block. To avoid crashing, be sure to use the particular web browser recommended by the brokerage site you’re visiting. Even with the right browser, though, expect to encounter some frustration; due to traffic jams at your Internet service provider or technical errors on the part of your online trading firm, the site is likely to have occasional downtime. Before you start placing trades, make sure you understand the firm’s policies concerning technical difficulties and how to reach the appropriate tech support folks.

Finally, one of the risks associated with using the deepest-discount brokerages is that customer service can be (shall we say) disappointing. You may not encounter difficulty until you have to cancel an order or get a trade corrected; but once a problem occurs, you may well appreciate a prompt, courteous and helpful customer support desk. In general, the well-established firms that charge higher rates, like Charles Schwab’s e.Schwab, provide better service when something goes wrong. It is prudent to be wary of the most minimalist services.

Trading up

If you’re tired of paying steep traditional brokerage commissions or you’re new to the thought of discussing personal financial decisions with a stockbroker, you’ll find that web-based trading services have a lot to offer. The most important prerequisite is to feel confident of your understanding of the stock market before you begin placing trades online. Once you’ve become familiar with the different types of orders, and you do your homework on investments you wish to purchase, you can relax in front of your computer and trade away.

Investing Online
General Contributor
Janice is a writer from Chicago, IL. She created the "simple living as told by me" newsletter with more than 12,000 subscribers about Living Better and is a founder of Seekyt.

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