Online Trading

Electronic trading over dedicated telephone lines has been a staple of investment services for years, and now e-trading has reached its natural evolution to internet-based trading services. Brokerage websites offer discount broker services for low prices, about $8.00 a trade on average. Not all trading sites are created equal, though, and internet trading comes with its own set of concerns.

Security & Privacy

Any activity with your brokerage account should be treated as sensitive information. Never use any website that doesn’t offer some kind of secure connection, preferably a secure sockets layer (SSL). SSL can protect a data stream with 128-bit encryption, so that even if your information is somehow intercepted, it’ll be unreadable and useless. If you’re unsure of how to tell if a connection is secure, the firm’s website should have information detailing the security features they offer or a technical support e-mail address for requesting information.

As with any sensitive computer use, keep any passwords private. Do not write them down or store them on a computer, CD-ROM, or the like. Memorize your password and change it frequently. Also, avoid choosing passwords that could be easily guessed, like birthdays and pet names. A random mix of numbers and letters is best.

Other Concerns

Online trading can be inexpensive, but the firms offering the lowest prices for discount broker services require you to hold a large minimum balance ($10,000.00+) in your brokerage account. If you’re going to commit that kind of money to a firm, research them before investing—you don’t want to be taken advantage of by frauds.

Also remember that the discount brokers you find online only execute the orders you give them and generally do not offer investment advice, so your investments will be largely self-directed. If you are not comfortable with making investment decisions for yourself, it’s best to find a traditional offline broker. The extra money you’ll spend on full-service brokering is nothing compared to the money you could lose without guidance.

Finally, while internet-based trading is eminently convenient and can move fast, the internet is not always reliable. Servers go down, network latency delays price updates, and misinformation abounds. Patience and care are absolutely necessary when trading online, especially without the benefit of a traditional broker’s investment advice