The list of ways the desktop computer has changed modern life is long and varied, and it continues to grow. What was cutting edge in the 1980s, then a novelty in the 1990s, and then an emerging option in the early 2000s, is today’s default way of doing things.
Such is the case of buying and selling stocks
While the traditional stock broker continues to drive a German car, the landscape of personal investing has changed dramatically with the proliferation of online stock investing. Which, as the name implies, is the self-implemented buying and selling stocks on virtually any market on the planet with the touch of a few keys.
The investor goes solo
The process very much parallels that used by traditional brokerages for decades, only without the stockbroker.
An account must be opened with an online brokerage firm – also an online process – which will have sophisticated software fronted by an easy-to-use interface from which transactions will take place. The investor deposits money into the account – this is unlike a brokerage, which, after qualifying will give you three to five days to deposit enough money to cover your purchase – to use for the investments you make.
Unlike traditional brokerage accounts, however, the investor has immediate access to vital information, such as current prices, volume of bid and ask trades in the queue, and immediate visibility to company-specific data, including dividend and P&L performance.
Which means, now the individual investor can do their own research to an extent never before possible.
Any type of buy or sell trade can be entered manually by the investor
This includes market orders, limit orders, stop orders, short sales, margin trades, and options, or anything else in the realm of cash management (withdrawal and deposit), tax forms and communications.
The online firm manages the cash on hand, even paying a small amount of interest on cash balances. Trades settle automatically within the system, and stocks are always held in “street name” by the online broker.
Individual investor portfolios are instantly visible in many forms, including graphs that indicate performance over user-selected criteria. You’ll know right where you stand at any given moment, including the very second your trades execute, and you’ll have a record of the specific trades and cash moves that got you there.
At a Fraction of the Cost
Perhaps the biggest difference – and advantage – of online stock trading over traditional trading is the cost. Traditional brokers have historically charged a much higher commission, both for small trades and for large blocks. Sometimes these commissions amount to five or ten percent of a small trade, or many hundreds or even thousands of dollars for a large block.
Online brokers, on the other hand, charge a very nominal fixed fee per trade, usually in the vicinity of $5, no matter what the size of the trade itself. As a percentage of a large trade, the cost becomes practically non-existent.
Some online brokers even offer a block of free trades for opening a new account, sometimes enough to cover costs for months or even years.
For all these reasons, especially cost and convenience, frequent traders have moved into the online trading realm almost exclusively. But the benefits extend to small and infrequent traders as well, and without difference.
In any case, the wise investor accounts for all possible variables. With online investing, cost and convenience make the choice easy.
