About Online Trading
From LoveToKnow Online
The Internet Provides a Means for Online Trading
Buying and selling securities via the internet, also known as “online trading,” became extremely popular in the late 1990s when people’s access to the internet became fast and easy. Over time, people have learned to trust the internet and the security it offers for monetary transactions, and many people now use the internet as their primary source for buying, selling and trading investment securities. Online accounts are also commonly used for simply monitoring brokerage holdings.
Online Trading vs. Day Trading
It’s easy to confuse “online trading” and “day trading” because they both contain the word “trading.” However, the two are actually different things. Online trading is what a person does when he or she wants to buy or sell stocks, bonds, mutual funds, or other types of investment securities via the internet. Many agree that the internet is a much faster and easier way to manage brokerage accounts than calling a broker on the phone and waiting for him or her to complete transactions.
Day trading is a type of buying and selling strategy in which a person buys a specific amount of stock in a particular company with the hopes that the stock will rise in value within the same day that it was purchased. People who are day traders may purchase a large quantity of shares in a company with the hopes that the price of the stock will go up by a few cents or more in a particular day. At the end of the day, a day trader sells the stock for a small (or large) profit. Over time, the usually small daily profits combine and can add up to quite a bit of money. This type of trading can be compared to gambling, but may not be as blind or luck-filled as the spin of a roulette wheel in Las Vegas.
Online Trading Accounts are Easy to Open
It is simple to open an online trading account. All that is necessary is some research to determine which brokerage company will be most suited to meet particular needs, a computer, and internet access. Usually, a few pieces of personal information are required such as a social security number and other bank account information, but most of the paperwork can be completed on line. Some brokerage companies require that certain forms be signed on paper and mailed to a physical location.
Once an account is opened, it may be possible to begin online trading almost immediately, assuming there has been some cash transferred into the account to get things going.
Cash vs. Margin
When a person intends to always buy new securities using existing cash, that person can take the money from his or her cash account to do so. If a person does not wish to always purchase securities in full cash, or if that person does not have the cash available for a purchase, a margin account can be used. A margin account allows the customer to borrow a percentage from the total amount of the cost of a purchase. This is significant risk involved with buying securities with a margin account, however, some believe that the risk is worth the potential benefits.
Risks Associated with Online Trading
There are always risks when buying, selling or trading stocks, bonds, or any other types of securities. Risks can be elevated when an inexperienced investor tries to undertake complicated transactions online without the expert advice of a professional. However, for a novice investor dealing with a small amount of money, online trading can be a good learning experience.
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This page has been accessed 933 times. This page was last modified 12:44, 8 January 2009.
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