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Be aware that when online trading, the price of some stocks, especially recent "hot" IPOs and high tech stocks, can soar and drop suddenly. In these fast markets when many online traders want to trade at the same time and prices change quickly, delays can develop across the board. Executions and confirmations slow down, while reports of prices lag behind actual prices. In these markets, those who do online trading can suffer unexpected losses very quickly.
Investors trading over the Internet or online, who are used to instant access to their accounts and near instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets.
Online trading is quick and easy, but investing takes time
When online trading, you can buy and sell stocks from more than 100 online brokers offering executions as low as $5 per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.
When online trading, set your price limits on fast-moving stocks: market orders vs. limit orders
To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled.
Online trading is not always instantaneous
Online traders may find that technological "choke points" can slow or prevent their orders from reaching an online firm. For example, problems can occur where an investor's modem, computer, or Internet Service Provider is slow or faulty; a broker-dealer has inadequate hardware or its Internet Service Provider is slow or delayed; or traffic on the Internet is heavy, slowing down overall usage (and your online trading can suffer).
When online trading, know your options for placing a trade if you are unable to access your account online
Most online trading firms offer alternatives for placing trades. These alternatives may include touch-tone telephone trades, faxing your order, or doing it the low-tech way--talking to a broker over the phone. Make sure you know whether using these different options may increase your costs. And remember, if you experience delays getting online, you may experience similar delays when you turn to one of these alternatives.
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