It is not difficult to get started buying stocks online. The bigger challenge is to develop a plan so that your online stock investing produces profits and not losses. For a successful move into online stock investing you should do your homework, start small and learn as you experience success and failures.
Basic Stock Investing
To invest in stocks you buy shares through a registered stock broker. You place an order with your broker for the specific stock and the number of shares you want to buy, and the broker goes into the markets to buy the shares for your account. These steps happen quickly and electronically when you buy shares through an online account. Your profits from stock investing can come from rising stock values and dividends paid by the companies represented by the shares. There are periods of time when the stock markets go up in value -- called bull markets -- and periods when most stocks are declining in value, which are called bear markets.
Selecting an Online Broker
An online brokerage account will let you look up share prices, perform research on stocks and buy and sell shares through your online account access. You can select from a large number of online brokerage companies and accounts. A major consideration is how much the broker charges to buy and sell stock. These fees are called commissions. But you should weigh other factors as well. The SmartMoney Annual Broker Survey compares brokers according to their commissions and other fees, the range of offered investment products, investment research resources, trading tools and customer service. Before you sign up for a brokerage account, determine which services and products are most important to you and select a broker that rates high for those services.
Investing vs. Trading
An important concept to understand is the difference between investing and trading. Investing involves buying shares of stock based on the business prospects of the company behind the shares. It usually means owning shares for longer periods of time, sometimes many years. Trading is about attempting to make profits from the short-term fluctuations in share prices. Trading strategies primarily focus on share values with little regard to the underlying company. The Securities and Exchange Commission, or SEC, notes that most short-term traders suffer large financial losses as they learn to trade and few novice traders reach a level of successful profitable trading. There is a much smaller potential for losses from investing in stocks of good companies and holding the shares for the long-term.
Research and Planning
Being a successful stock investor or trader requires research and planning. The SEC recommends setting goals, developing a plan and determining your risk tolerance before starting an investment program. There is a large amount of information concerning stock investing. Just be aware that many information purveyors are trying to sell products or services. A good source for your initial research will by the online brokerage you select. Start with smaller stock investments to learn how the broker's online system works and see how your account value grows or declines.
- As with any major investment, it is best to obtain professional and expert advice before completing any transactions.
- Investing in the stock market online (or traditionally for that matter) can be risky. Be sure to "do your homework" accordingly.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.