TIPS FOR ONLINE INVESTING, WHAT YOU NEED TO KNOW
Creating a list of tips for stock trading and investing online could be never ending. However, we've put together a top 10 list of tips for those who are ready to invest in stocks online.
Know the Risks: Know what you're getting yourself into and the risks involved with investment vehicle you choose. Understand the current volatility of the market before you jump in.
Determine Your Trading Style: Will you be a growth investor or value investor? Bullish or bearish? Even if your trading style changes when the market fluxes, you want to have clear understanding of different styles, especially when to use them.
Choose the Right Broker: With the information provided above, you should be able to find a good online broker, whether that is the cheapest online broker, the one with the most powerful platform or the one with the best reputation. The right broker depends on your preferences and goals.
Research: Look into the stock and its company. You will own equity in the company, so make sure it is something you believe will benefit you and your investing goals. Also, look into the past performance of the stock. Pay attention to trends in its history. It is also advisable to not buy stocks under $10 per share. Some experts even say not to go under $15 per share.
Be Prepared to Lose: Losses happen, especially when you're learning how to trade. Understand that this is the nature of the beast.
Be Patient: Just because your stock drops doesn't mean you should immediately sell. Many traders hold on to stocks for years and ride through the frequent ups and downs in the market. However…
Be Prepared to Cut Your Losses: A common rule of thumb is to cut your losses at around 7% to 8% below your purchase price. You can use stop-loss orders to automatically sell a stock if it drops below the parameters you specify.
Keep Up With News: As explained above, many factors affect the stock market, so keeping up with not only market news but also local and world news will help you avoid being blindsided by sudden events that cause the market to drop.
Learn the Language: The language of the stock market may sometimes feel like Greek. There are many terms that you will catch on to after time, but many online stock trading sites offer glossaries so you can beef up your vocabulary in a much shorter period.
Utilize Resources: Whether books, articles, training material, seminars or an experienced friend, seek out solid advice to learn as much as you can about the market, trading and refining your trading strategy.
PICKING YOUR FIRST BROKER, WHAT YOU NEED TO KNOW
When choosing the best online stock broker for you, you want to find one that offers the features and options that match your trading strategy. Some of those considerations are the pricing and fees, the way the platform works with your strategy, and the education offered.
If you are new to trading online and do not plan on trading often or in large volumes, the cost per trade may not be much of factor when choosing a service. However, if you plan to order a large number of trades, those individual fees will add up, and the difference between a couple of dollars per trade may equal out to hundreds of dollars over time. OptionsHouse and TradeKing offers some of the best trade fees, with each online stock trading costing $4.95, which is a couple dollars less per trade than the average of online trading companies we reviewed.
If you are interested in trading options, you have two prices two take into account: the base rate and the per-contract fee. The base rate may be higher with some services while the per-contract fee is lower. If you plan to trade a large number of contracts, this model would benefit you more than looking for a service with a lower base rate. As mentioned above, the cost to exercise or assign an option contract will also add. OptionsHouse has the lowest fees for these two processes at $4.95 each.
If you plan to trade on the margin, you want to check out not only margin rates but also the tiers for the rates. Some services have lower rates at first glance, but those rates do not drop until your borrowing balance is well over $1 million. Once again, OptionsHouse has the best interest rates, starting at 6.5% for balances up to $25,000 and dropping to 2% when you balance breaks the $1 million mark.
Each individual service typically has its own margin account requirements, including minimum balances and minimum trading requirements to maintain an active and open account. Regulations enforced by the Financial Industry Regulatory Authority require that pattern day traders – those who buy and sell the same security four or more times in a five-day period – maintain at least $25,000 in their margin accounts.
When choosing your platform, as discussed above, you have the choice of desktop or online. Services such as Fidelity and Scottrade offer standard online platforms, which are easy to navigate and intuitive to complete tasks. Scottrade's online platform is customizable, which you do not get in every online platform. Online services like TradeKing allow you to adjust the position of some of the windows, but it is not truly customizable like Scottrade or even OptionsHouse and optionsXpress.
If total customization is something you're looking for, TD Ameritrade's thinkorswim platform is a solid choice. You can add, resize, minimize and maximize all the windows and choose which choices you are viewing. TradeStation is also a great choice in platforms for customization with its widgets and gadgets, including screeners, scanners and streaming news.
Mobile platforms across the board allow you to research and trade stocks, but some services offer additional features. Mobile apps from Fidelity and Merrill Lynch, for instance, offers check depositing, where you can snap a picture of a check, deposit the funds and immediately begin trading with those funds. E-Trade's mobile app offers check depositing as well as barcode scanning. This feature, which no other app on our lineup offers, allows you to scan a barcode and receive publically traded information concerning the related stock.
When deciding on a stock trading service, the investments in which you are intersected in trading may be a deciding factor for you. Without question, every service should offer stock and option trading. All of the services we reviewed also offer IRA investments. With the exception of SpeedTrader, you can trade ETFs with the services on our lineup, and you can trade mutual funds with all services we reviewed except SogoTrade. This just means that if you want certain investment vehicles, you'll want to ensure that the service offers the particular ones you want.
Fewer services offer riskier trading of futures and Forex. Futures differ from options in that the owner of the future has the obligation to buy or sell, while with options the owner has the right to buy or sell. This makes speculating on the subsequent performance riskier than with options trading. Forex trading, the trading of foreign currencies, can be extremely risky because of the liquid nature of the market, making for potentially devastating losses. Many find the potential for profit outweighs the risk of loss.
COMPARE ONLINE BROKERS FEES, SERVICES & REPUTATION
The features of the specific broker, including the price and platform features, are major aspects when choosing an online brokerage firm. However, the reputation of each broker may be a large consideration, including how well known and established the company is within the industry. Bigger names are more recognized as they have been around for decades, while other services have familiar advertising campaigns. Other players are newer to the world of online trading, so their names may not be as widely recognized, but their reputations and reviews from satisfied customers speak for themselves.
When it comes to the big baron brokers, a few names will inevitably pop up first. TD Ameritrade is one of those well-established names, having been in business for decades and acquiring other firms along the way. It was one of the first online brokers to offer fast online stock trades. It ranks extremely well with online business rating websites and other brokerage review sites, and we could find relatively few customer complaints.
Charles Schwab is another brokerage company that has been around for some time and one that is well known and respected in the industry. It focuses on investing and planning for your future, so it provides solid resources for learning how to invest and how to grow your portfolio. While Charles Schwab has its own trading platform, it also offers optionsXpress, which is a platform with advanced stock research and trading tools. Both Charles Schwab and optionsXpress rank well online, both with experts and with customers.
Services & Local Branches
Other names are easily recognized due to advertising on televisions and via other media outlets as well as by having local presence with branches across the country. Fidelity is well known for helping you plan your future, and it always shows up on lists for best online brokers. At local branches, you can receive face-to-face attention and guidance from expert brokers. At Fidelity Investor Centers, you can attend trading seminars to learn more about the industry and maximizing the Fidelity Service.
Scottrade is another familiar brand around most towns, with more than 500 branches located in the majority of states. You can attend in-person events covering a broad range of topics, such as learning about investment vehicles and strengthening your portfolio. Scottrade also offers a broad range of online educational events, including daily market commentary from Scottrade experts, strategy sessions, and live and archived webinars.
E-Trade is our top pick for beginner traders, providing the most comprehensive educational resources. These include access to online courses from Morningstar Classroom, webinars, video tutorials, articles and demos. It also offers 24/7 customer service and has local branches in 16 states and Washington, DC, where you can receive in-person attention to set up your investment strategies and plan for your future and retirement.
Best Fees & Rates
If lower fees are where your main focus lies, OptionsHouse and TradeKing are good choices on our online broker comparison. Both offer the lowest trade fees of the services we reviewed. Both also have solid reputations for online stock trading. Other services offer tiered pricing, so if you trade more, each individual trade costs less. TradeStation offers such pricing, with trades dropping to under $5 provided you order more than 200 trades per month.
For active day traders looking for the lowest trading fees, SogoTrade may be your best choice. If you order fewer than 150 trades per quarter, each trade is only $5, which is cheaper than many services from the get-go. However, if you order more than 150 trades in a single quarter, each trade drops to $3, which is the cheapest per-trade cost of any service we reviewed. It's per-contract fee is also one of the lowest, though its option exercise and assignment fees are higher than many other services.
For day traders looking to borrow from their brokers via margin accounts, you'll find a wide range in rates. SibertNet has the lowest margin rates, but its trade fees are significantly higher than other services on our lineup and its commission schedule is not as straightforward either. OptionsHouse offers the lowest margin rates, though its lowest rate comes with margin balances exceeding $1 million. SogoTrade also has low rates, though not as low as OptionsHouse, but to receive its lowest rate only requires a $500,000 balance, which could benefit those not looking to borrow as much.