Online trading has increased among casual traders. More than 13 million people in the U.S. had used an online stock trading service in the last year before spring 2014, Statista reported, up from 11 million in 2008. Mobile trading is the latest investor trend, and specialized trading apps are available on Google’s and Apple’s stores. Stockbrokers.com ranked E*Trade’s trading app as one of the best mobile trading apps in 2015.
Online trading can be lucrative. Day traders rely on buying stocks at a low price and quickly selling them at a higher price, but risk is a factor. Fidelity advises traders to build a diversified portfolio for future financial security with relatively low risk.
Stockbrokers were the traditional gateway to stock markets but, now, trading is accessible to all. For the novice trader wondering how to buy stocks online, the absence of a broker can reduce cost and increase convenience. Online trading gives investors more control of their transactions and their financial future. Some transactions have no minimum investment.
What Are the Best Stocks to Buy Online?
According to Charles Schwab, the type of asset that you buy should depend on your financial goals and your comfort level with financial risk. Investments with greater risk often yield a higher return.
1. Stocks
Stocks represent ownership in a company. Stocks provide income from dividends and the sale of shares. Stocks should not make up all of your assets. Stocks are a wise investment in a bull market but, in a bear market, the price can go down. When purchasing stock, consider factors such as the company’s performance, industry trends and the economic environment.
2. Exchange Traded Funds (ETFs)
ETFs are traded on stock exchanges and often follow the trend of an index. They are used to balance out a portfolio and are low in cost compared to mutual funds. Unlike mutual funds, which are traded when markets close, ETF prices can change within the day. Gains from ETFs are subject to less tax than mutual funds because of a lower turnover rate; however, ETFs may require a minimum investment, usually one share.
3. Mutual Funds
A mutual fund is a pool of financing from like-minded investors used to trade stocks, bonds, and other money market assets. Investors may be from the same industry and share “mutual” investment goals. Mutual funds offer a diversified portfolio with a mix of securities. Mutual funds suit the conservative investor with limited capital to invest; however, they often have additional fees.
4. Bonds
Bonds represent the debt of a government or corporation that uses your investment as financing. The bondholder receives a return and a promise of repayment. Bonds are often considered the safest investment because of the steady payments and the return of principal at the end of the bond’s life. Bonds appeal to the risk-averse investor and are also termed fixed-income securities.
5. International investments
International investments can be made in stocks, bonds, mutual funds and ETFs. The U.S. Securities and Exchange Commission emphasizes the high risk of off-shore investing. Factors to consider include unpredictable exchange rates, political instability and lack of liquidity.
6. Options
According to MarketWatch, options can appeal to the aggressive investor. A buyer trades an asset at a set price during a set period or on a specified date. A call option is an option to buy, and a put option is an option to sell. Options are used to speculate and could be considered risky. For call options, the buyer wants the stock to go up, relative to the original stock price. For put options, the buyer wants the stock to go down.
7. Futures
Futures, or trading of physical commodities, are for the informed investor since it involves hedging or speculating on future prices. Extensive monitoring of the market, industries and world events in conjunction with substantial funds are required for successful futures investing.
8. Foreign Exchange (Forex)
According to FXCM, a foreign exchange broker, Forex is the largest and most liquid market. The Forex market is also fast and volatile. Traders should understand the dynamics of currency rates. Forex trading involves predicting exchange rate changes and extensive knowledge of interest rates, inflation and political climates.
Monitoring Your Stock Online
Online trading does not require a broker, but it does require an account with an online trading company. Select a company according to your expected trading amount, frequency, and how much guidance you need. According to Top Ten Reviews, OptionsHouse received the best overall rating, SogoTrade ranked high for fees and commissions, and E*Trade Financial was ranked highest for mobile access.
Buying and Managing Stocks Online
1. Open an account with an online service or broker. Popular companies include E*Trade Financial, Fidelity, Merrill Lynch, Scottrade and TD Ameritrade. Most accounts will require initial funding.
2. Research companies’ performance. Online trading sites provide stock prices, company data, and general financial and investing information. E*Trade Financial reports that the top three dividend-yielding stocks are currently Verizon, Chevron and McDonald’s.
3. Your strategy should reflect your investment needs and your capital threshold. Buy when a stock price is low, and sell when the price has increased.
4. Monitor your stock. Your account might automatically provide you with individual stock values and portfolio growth data. Other services may include data streaming, watch lists and retirement planning tools.
The Investing Online Resource Center offers a simulation of stock transactions for new investors. Most online services have video tutorials and educational resources, and E*Trade Financial, TradeKing and OptionsXpress offer extensive support to account holders.
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