Picture it: Wall Street, 1982. A young investor has heard that shares in Chrysler are going through the roof. He wants in on the action. So he velcroes up his Reeboks and steps out the door. As he embarks on his uphill journey to the library, he tabulates a mental chart of the financial data he’ll have to compile before calling his broker.
Upon his arrival at the library, our exhausted investor flips through the card catalog to find the literary tomes he needs. He trudges to the periodicals and, using all the strength he can muster, locates the Wall Street Journal. Yes! It is true! Chrysler’s financial troubles are nearing an end, and the end of the recession seems near.
Rejuvenated by his findings, the investor flees the library to ascend the hill to the nearest pay phone. He inserts his dime and with a flurry of his fingers, dials his broker. With a sense of satisfaction, our protagonist makes his order, and returns home. Uphill.
Fast forward to 2017. A seasoned investor has heard a rumor that Snapchat shares have dropped 12%. He unlocks his smartphone, opens his Google app, and confirms the news. He swipes to his Robinhood app, clicks twice, and his SNAP shares are sold. Online stock trading has certainly made life easier for our friend.
Investing has come a long way since the birth of the internet. It’s no longer necessary to trudge uphill both ways in a pair of worn out Reeboks to research and buy shares in successful stocks. Online stock trading is a huge industry; it’s cheap, it’s fast and it’s insanely convenient. Let’s look at some of the ways e-trading has changed the market.
What is Online Stock Trading?
Online stock trading, or e-trading, is just what it sounds like. It’s any method that an investor can use to buy and sell shares of stocks or commodities on the internet. There are a huge number of platforms traders can use to do this, like Trade.com, Plus500, or eTrade. And Wall Street brokers offer internet trading, too.
For every brokerage site on the internet, there are a hundred reviews. Check out sites like buysharesin.com to choose one, and once you find one that you like, stick with it. A centralized portfolio makes online stock trading worlds easier.
How Much Does Online Stock Trading Cost?
Commissions are lower than they’ve ever been before. Back in the 1980s commissions paid to brokers could be as high as $45 per share, but potentially much higher if the brokers were charging a percentage. A purchase of $100 of stock in a company could cost just as much in commissions.
Today, there’s fierce competition between brokers. Some online brokerages charge as little as $4.95 per transaction, and others, like Robinhood, are free. The competition has caused brick and mortar brokers like Fidelity Investments and Charles Schwab to restructure their own commissions; recently the two companies both announced flat rate commissions of about $5.
We’ll look at a few of the options you can research for online stock trading in just a bit, but for now we’ll just leave you with this takeaway: If you’re paying more than $10 per trade, you’re being robbed. Straight up robbed. There are so many platforms that you can use which have significantly lower commissions, excellent customer service and convenience that our investor friend never dreamed of. Choose one, and switch immediately.
What’s the Benefit of Online Stock Trading?
We’ve already mentioned a few. It’s inexpensive, it’s fast, and it’s convenient. Of these three attributes, the most beneficial is the speed with which you can trade.
Online stock trading is mostly automated. Everything’s done through computers, and you no longer have to use the pay phone to dial up your broker to place an order. For day traders, this is huge. It’s a pretty big deal for everyone else, too.
There are hundreds of factors which affect stock prices. News, in particular, affects the market. When you can see the news while simultaneously playing the market, you’re able to make quicker decisions. Usually it takes two or three clicks to purchase or sell stock, and your earnings (or losses) are automatically reflected in your portfolio.
Click. Click. Done
The advent of online stock trading has increased market liquidity. More buyers can enter the market, and more sellers can, as well. And when everything is electronic, everything is easier to find. You don’t need a copy of the WSJ to see what Fiat Chrysler is doing. Just plug “FCA” into a Google search field and BAM! Instant results, market news, and plenty of opinions.
There’s absolutely no doubt that using online stock trading programs will give you a huge advantage over an investor who won’t.
How do I Start Online Stock Trading?
Like we said before, there’s no small number of online brokerages. The hardest part is finding the one you like best. Think about your lifestyle. Are you usually at your desk? You might not mind having to log into a site on your browser to trade. Would you rather trade from your mobile phone? Most brokerages have apps.
Cost is another factor. We mentioned earlier that commissions can range from free to $10. Robinhood, for example, is free, while others can charge up to $10. But that’s not all. You’ll have to think about your opening balance as well. Do you have $10k to invest? Great! Pretty much any account option is open to you. But if you’re thinking more along the lines of one share in Apple, then you’ll want to find online stock trading brokerages with a lower minimum account balance.
Finally, don’t be scared to ask questions. One of the biggest pet peeves that a lot of traders have is the inability to get their questions answered quickly. If you want to sell your shares within the next ten minutes, but aren’t sure how your earnings will be paid, you’ll need immediate customer service. Our suggestion to you is to give customer service a trial run before you open your account. Find something arbitrary to ask, and check out their response time and the accuracy of their answer. You’ll be glad you did later when you’re down to the wire on a lucrative transaction.
Online stock trading has changed the way we invest completely. Even the traditional brokers are jumping into the game, realizing that today’s investor isn’t interested in walking uphill both ways to the bank. Competition is huge and trading is fast, even exciting. Don’t let it intimidate you. Find a platform you like and start your portfolio. Good luck!