Online Stock Trading

Online stock trading (also referred to as e-trading) is the purchase or sale of stock through the Internet. In use only since 1996, online stock trading now accounts for one out of every six stock trades, easily making it the fastest-growing application in B2C e-commerce. Offering secure connections through the customer’s Web browser, online stock trading sites enable investors to buy and sell stocks online without the aid of a broker. The attraction of online stock trading can be summed up in one word: cost. Traditional, full-service brokerages charge up to $100 per trade; discount brokerages charge about $50. But the most aggressive e-traders have cut the charges to $10 per trade or less. E-traders, such as E*TRADE and Ameritrade, can offer such low prices because the trading is automatic-no human broker is involved. However, many potential online investors are concerned with security and timeliness. The issue if making secure online trades isn’t really any different from the general issue of online security. All financial institution use secure connections. This doesn’t mean that transactions can’t be intercepted or redirected, but millions of dollars are transacted online every day without incident. Online trading of stocks is regulated by the Securities and Exchange Commission (SEC) in the same way other methods of trading are. Most brokerages use trade confirmation methods that help to ensure that all trades are transected properly. Timeliness is an issue only if there is a delay in completing a transaction that causes you to miss an opportunity. Delays can be caused by power outages, dropped connections, computer overloads, and batch processing. Despite these occasional delays, however, most online transactions take place in a timely manner. According to investment professionals, online trading does have a disadvantage. Online trading appeal to an amateur investor’s worst instincts-namely, buying when the market is at its peak of enthusiasm (and prices are also at their peak) and then selling when prices start to drop. This translates to buying high and selling low. You don’t make money that way; you lose money. That’s true even when, overall, the market is going up. Most investment counselors believe that amateurs are well advised to avoid frequent trading (some times called day trading). Also, when the market plunges, electronic investors often receive a rude shock: due to overload Internet servers, they can’t unload their stocks until the market hits bottom.