Online stock investing allows investors to buy or sell stocks through an online stock broker. These stock brokers differ from traditional full service brokers, as they generally do not offer financial planning or stock picking advice.
How Online Stock Investing Works
Investors sign up for an account with an online stock broker service, then typically pay per transaction to buy or sell shares. Online stock brokers are also called discount brokers, as the fees are lower than those charged by full service brokers. However, online stock brokers are more buying and selling agents than financial advisers; the difference in price equates to a difference in the level of service provided.
Popular Online Stock Broker Services
Many large banks offer online stock broker services, such as BMOInvestorLine.com (BMO Nesbitt Burns) and TDWaterhouse.ca.
Other popular, established online stock investment service providers include:
- optionsXpress
- Questrade,
- E*Trade Financial
- TradeKing
- Firstrade
Use the Financial Industry Regulatory Authority's BrokerCheck tool to investigate an online stock broker before using their services. BrokerCheck searches the Central Registration Depository, a database of information gathered from brokers and brokerage firms as a part of their securities industry registration and licensing. Do not use the services of an unlicensed broker or firm.
How to Get Started in Online Stock Investing and Purchasing Stocks
Registration with an online stock broker usually requires the submission of personal identification, including a social security or social insurance number, and a driver's license or other photo I.D. Registration can take a few hours to several weeks, depending on how the information is submitted.
Each online stock investment brokerage has a minimum deposit limit. Choose one that is within the investment budget and fund the online account from a bank account.
Read all online stock broker agreements, terms, conditions, privacy policies, and waivers carefully. Spend as much time as is necessary to review any available training materials. Know the system for selling and buying stocks online before making the first investment.
How to Avoid Online Stock Investing Scams
Buying stocks online requires a medium to high tolerance for riskier investments, and at least a working knowledge of current market conditions and individual stock picks. Never rely on tips or advice on message boards or finance forums; while some users have good intentions, these are a ripe breeding ground for stock scams such as the penny stock pump and dump.
The penny stock pump and dump often catches new investors because scammers contact them through email or on message boards with supposedly hot tips and insider advice. Promising massive returns with little investment, these unethical scam artists are able to convince a number of new investors to buy a particular stock, falsely increasing demand and therefore the stock price (this is the pump).
When the price shoots up, the scammers sell all of their shares at the inflated price, taking the investors' money and leaving them with worthless stock (this is the dump).
Never rely on other internet users for advice or help choosing and purchasing stocks. Learn how to buy stocks online by doing homework and researching companies through credible financial news agencies.
Stay Safe and Use Online Stock Investment Services Wisely
Purchasing stocks through a discount or online stock broker is a great way for investors to save money and control their own investment portfolio. With freedom comes additional responsibility and risk.
American citizens should become familiar with the U.S. Securities and Exchange Commission rules, regulations, and violation reporting policies. Watch for new scam alerts and updates to trading regulations.
Canadians can use Sedar.com, the Canadian Securities Administrators website (with access to the Canadian Depository for Securities), for additional investment information.
See 2009 Stock Market Holidays for important information on the early closing hours and national holidays of major U.S. and Canadian stock exchanges.
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