Online Stock Trading - Advantages and Risks

By Micheal James

Online stock trading is a common phenomenon for big institutions, who have been involved in it through online network of Reuter's "Instinet" and a system called "Posit" since the 1960s. However, it has become the "trend of the day" for all only since the late 1990s. Any why not; online trading has several advantages for investors:

• Investors do not have to bargain with customers, suppliers, or salespeople as a businessman.
• They do not have to travel on work.
• They can plan their work or time to be devoted on stock trading and plan vacations accordingly.
• The most important one, investors can live in any part of the world and can trade in the opposite part of the world through the click of a mouse.
• Also, this does not require one to be in front of a computer all day! It has to be according to when the stock market opens and closes.
• The investments made are based on independent research of the investors and there is no dependence on the advice of a broker; this is especially advantageous for an experienced investor.

With more and more investors opting for online trading brokerage firms are also trying to provide them with greater facilities. Generally, an investor can open an account with US $5000 with any firm and trade in stock. A check book or an ATM card can be used to make payments for trading. Online stock trading has reduced the operational costs of these firms as they do not have to house an "army of brokers" for stock trading. Hence, they provide the following advantages:

• "Seamless Transactions" -- By integrating accounts, there is no possible wastage of time between placing of orders and their execution.
• Manipulation Prevention - Almost all firms send an e-mail confirmation to the account holder as soon as an order is executed.
• Safety and Security - They try to provide a secure network for transaction, such as the 128-bit encryption technology.

An investor can follow some simple tricks and tips for a safe and secure online stock trading:

• An investor should do technical analysis through good charting software to forecast the financial price movements based on the past. Good research is the key to a good investment.
• One should also do a fundamental analysis of the companies to invest in. The track record of the company can say volumes about the potential of a stock in the market.
• An investor should read the agreement with brokerage firm carefully as to how it defines the risks of hacking and who bears it. Investors involved in online trading should use only personal computers, install an OS (windows 2000 or XP) free from a "Keylogger" used for hacking, use firewall like "Zone Alarm Pro" to detect any suspicious software, and have the antivirus software updated as measures against hacking.
• Also, one should ignore emails recommending any stock (such as stock with low market capitalization), which can start with the words "highly confidential information."