Learning the Online Stock Trade

By: Anne Durrell

With the advent of the Internet, the online stock trade has taken over as the most popular way to trade stocks. Because technology frees investors from having to call a broker and pay high commissions to trade a stock, they have much more immediate control over their investments. Because of this, online brokers are very competitive in terms of fees and commissions. And not only that, but the average online investor has access to pretty much all the information available to stock brokers.

The online stock trade will mean different things to different investors. While you may be comfortable with the risks involved in day trading, your neighbor or cubicle mate might be more of a buy and hold trader. The differences in strategy may mean that you set up an online stock trade account with a brokerage that charges a very low fee per transaction, and they might choose a brokerage that doesn't charge account inactivity fees.

Before you begin to trade stocks online, learn as much as you can about the online stock trade beforehand. Some brokers allow you to set up a practice account so that you can get your bearings in the stock trade without risking your savings. You should be well versed in the specific trading techniques of the brokerage with whom you ultimately set up your account. That way you'll minimize dangers of stupid mistakes like accidentally pressing buy when you meant to press sell.

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When you're ready to trade, you'll be faced with numerous choices. When you place a buy or sell order, you may only want it to be in effect until the market closes on that day, in which case you place a day order. If you want to buy or sell with no specific time limit, you buy a Good Till Canceled or GTC order. With a market order, you buy X number of stocks of Y company at the current market price. With a limit order, you buy as many shares of Z stock as you can with a fixed amount of money.

A short sale is a little different. You make a short sale on a stock that you think will drop in price. But you borrow the stock at its current price, then immediately sell it. With a short sale, you also agree to buy the stock back (a practice known as buy to cover) later, hopefully at a much lower price. In the U.S., you can only execute a short sale if that stock's last share price was higher than its penultimate share price. This rule keeps traders from piling on and arbitrarily increasing the downward momentum in a particular stock.

Someone just learning the online stock trade will need to be familiar with the basics of technical stock analysis (analysis of individual stock histories) and fundamental stock analysis (analysis of market trends as a whole). Though whole books could be written on technical and fundamental stock analysis, the beginning trader needs to be comfortable enough to read charts for individual stocks and for stock indexes, such as the Dow Jones Industrial Average.

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Learning the Online Stock Trade

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