Faster Internet connections along with the presence of personal computers allow an increasing number of investors to manage their finances online, at virtually any hour of the day or night. While online trading can be a “hands-on” learning experience for investors, it may not be appropriate for everyone. Whether you manage your investments on your own via the Internet or by working in person with a broker or investment adviser, it is essential that you know what types of securities you are purchasing, how they meet your investment goals, and the risks associated with each investment.
Online Trading and the Long-Term Investor
Investors can trade securities online as part of a long-term investment plan. Some investors research securities and then place trades without any professional guidance. Other investors use the Internet to self-manage a few of their investments and then consult a broker or investment adviser for help in managing the rest of their portfolio.
Online Trading and the Short-Term Trader
Some investors use the Internet to trade frequently with the hope of profiting from a rapidly changing market. Although the possibility of quick profits may be alluring, this strategy is risky. Market volatility, inaccurate information about anticipated changes in stock prices, and delays in the execution of online trades may lead to financial losses.
Tips for Online Investors
The following tips were developed by the North American Securities Administrators Association Inc. to educate investors and to help them think carefully about online investing. Before beginning an online investment program, be sure to:
- Understand that most likely you are not linked directly to the market through your home computer, and that the click of your mouse does not instantly execute trades or cancel orders.
- Determine if the stock quotes and account updates you receive are real-time or delayed.
- Check the online broker’s ability to get the best price for investors. Most brokerage firms provide this information on their website.
- Receive information from the firm to substantiate any advertised claims concerning the ease and speed of online trading.
- Obtain information about entering and canceling orders (market, limit and stop loss), and the details and risks of margin accounts (borrowing to buy stocks).
- Get information from the firm about significant Web site outages, delays and other interruptions that may affect your ability to execute trades. Make sure that the firm has an alternative way to execute trades.
- Review the firm’s privacy and security policies. Determine if your name will be used for mailing lists or other promotional activities by the firm or any other party.
- Receive clear information about sales commissions, transaction fees, and conditions that apply to any advertised discount on commissions.
- Know how to contact a customer service representative if problems occur. Request prompt attention and fair consideration. Be sure to keep good records to substantiate any problems that may occur.
Contact DISB at (202) 727-8000 or visit disb.dc.gov to verify the registration status and disciplinary history (if any) of the online brokerage firm, or to file a complaint, if appropriate.
This information is courtesy the North American Securities Administrators Association Inc., the oldest international organization devoted to investor protection.