A look at online trading
There is a big difference between online trading and online investing. One of the big differences is the time that it takes to trade versus the time it takes to invest. Trading is done in seconds via the internet. Investing is done over weeks, months, or years. Of course, to recover the money from an investment, the stock must eventually be sold (or traded) so there is some overlap. Primarily trading is a thought of as the activity involved with investment.
One thing you should know about trading is that it is not always instantaneous. Because stocks rise and fall so quickly throughout the day, the slowdown involved in internet use might cost you big bucks. If your server is slow, or your broker's server is slow, your trade can be held up as the information uploads and downloads. To avoid paying the price of slow internet speeds, you should use the fasted internet option available and see that your broker does the same.
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Another way to avoid being trapped by the waiting game is to use limit orders when buying and selling stock. There is a difference between market orders and limit orders. When you use limit orders, you will specify a price that you are willing to buy at or below and a price that you are willing to sell at or above. Using limit orders is somewhat of a double-edged sword. On one hand, you can guarantee that you will never buy or sell at a higher or lower price than what is acceptable to you. On the other hand, that might sometimes mean that you just don't buy or sell. Either way, it is important to know the difference between limit and market orders.
Sometimes your internet server goes down and you will be unable to connect to the network. If this happens to you during a time when it is critical that you make your transactions as quickly as possible, you will need to know what other options you have for making transactions. The time to look into this issue is before a crisis takes place. Find out what the telephone trade numbers are and also the fax trade numbers. Write these numbers down; do not store them on your computer because if your computer goes belly up, you will end up trying to get this information via phone books or telephone operators.
Any time you make a transaction, wait until you receive confirmation of the transaction. You may panic and think your order did not go through and reorder. This action can find you owning twice as much stock as you meant to buy. It might also find you selling stock that you don't own. Always assume that a transaction has been completed. If you don't receive confirmation immediately, contact the investment company to determine what happened to your order.
A final thing you need to know about online trading is that you have to pay for the stock you buy before you can sell it. It might be tempting to order a stock and then sell it prior to paying for the stock. This action is illegal. It is called free riding and if you do free ride, you broker is mandated by law to freeze your account for 90 days. Avoid having your account frozen by paying when you buy the stock or within five days of the purchase of your stock. If you cannot pay at the time of order, you can try to get an extension from the lender.
