Those nice folks at the Securities and Exchange Commission (SEC), charged with (among other things) looking out for the interests of individual investors, never stop trying to help us out. Their sec.gov website, for example, offers a bunch of tips for those of us who trade stocks online.
Before I delve into those tips, though, permit me to recommend trading stocks online, in case you've been hesitant to do so. I've been doing it for perhaps a decade now, with few glitches. I even wrote an article recently explaining in more detail how to trade online. [If you're ready to open a new brokerage account or are looking for a more suitable, less expensive brokerage, poke around our Broker Center.]
Back to the tips, though. Here are a few:
- "Online trading is quick and easy, online investing takes time.. 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."
- With fast-moving stocks, consider setting price limits via limit orders (as opposed to market orders). "A limit order is an order to buy or sell a security at a specific price.. When you place a market order, you can't control the price at which your order will be filled.. Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price."
- "When you cancel an online trade, it is important to make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, don't assume that that means the trade was canceled. Orders can only be canceled if they have not been executed. Ask your firm about how you should check to see if a cancellation order actually worked."
- "In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you are freeriding, which violates the credit extension provisions of the Federal Reserve Board. If you freeride, your broker must 'freeze' your account for 90 days. You can still trade during the freeze, but you must fully pay for any purchase on the date you trade while the freeze is in effect. You can avoid the freeze if you fully pay for the stock within five days from the date of the purchase with funds that do not come from the sale of the stock."
- "If you trade on margin, your broker can sell your securities without giving you a margin call." Learn more about margin in this Fool FAQ and this article on the "Magic Margin Formula."
Get more tips at the SEC website. And when you're ready to do some online trading, if you're looking for some recommended stocks or mutual funds, give our suite of newsletters a glance -- we're offering some free trials right now.
Here are some more Fool articles on brokerages:
- Which Brokerage Is Best?
- The Return of Chuckie
- Brokerage Statement Bewilderment
- Don't Get Blindsided by Your Broker
- Rating the Low-Cost Brokers
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
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