Since the emergence of the Internet, stock market trading has become much more available to a wider number of so-called average investors.

 

There may now be more unprepared investors entering the marketplace with greater ease, but it is also true that a wider amount of investment information from reputable sources and a diversity of investment services have become much more available to those who are willing to learn the nuances and precautions associated with stock market investing.

 

This multitude of choices may present its own array of challenges, especially for investors who are more at ease with traditional trading. For these investors specifically, there are questions that should be asked before entering the world of online trading.

 

How Do I Get Acclimated to the Ins and Outs of Online Trading?

 

For traditional traders who may be wary about online stock trading, stock market online games may provide a useful education and relatively painless trial run, since the only investment money at risk is virtual money. The most notable of the stock market simulations include "The Stock Market Game", the oldest and most established of these online games, and MarketWatch's "Virtual Stock Exchange".

 

Investors should not consider such game simulations as predictors of real-world stock market results, particularly since much of real-world stock trading relies on investor emotions, a factor most notably missing when there's no real risk.

 

How Do I Choose an Online Broker?

 

Like traditional brokers, online brokers execute trades and provide storage in individual accounts for shares, along with investment cash reserves. Online brokers are also subject to the same rules and regulations as traditional brokers. Also note that most (if not all) traditional brokers offer online trading services at their Web sites.

 

There are many online brokers to choose from, each with their own distinct online trading functions, along with various additional client services. Since investors have individual investment needs and customer service requirements, choosing an online broker can be a daunting journey of trial and error for some. Consider the following questions before choosing an online broker:

 

• Will you be trading for a long-term investment; for short-term (weekly or monthly) investments; or will you venture into the frequently dangerous world of day-trading? What specific broker or brokers might fit any or all of your trading needs?

 

• Can you afford the minimum cash investment needed to open an account with a specific online broker? Note that certain premium online brokers require large minimum cash investments, while others have minimums that are geared specifically to the small investor.

 

• Will you want to open a cash account or a margin account? A margin account is more speculative because it uses borrowed money. If this is your preference, certain online brokers may offer more comprehensive services specifically geared to margin accounts.

 

• After honestly evaluating your own trading skills, will you require immediate access to a "live" broker for assistance in online trading? Does a specific online broker offer such assistance via email, instant messenger, and/or telephone?

 

• How important is customer service to you when selecting an online broker? While you can find online services, such as Keynote, that provide in-depth comparative evaluations of online brokers, most online investors can only truly discover whether a broker meets their individual customer service needs by trial and error. Making a few small trades with an online broker that offers a free trial period could be a relatively painless way to test their customer service.

 

• How easy-to-use is the broker's Web site? As with customer service, a reasonable evaluation may only be made via trial and error.

 

• How important to you is the availability of in-depth stock research information as part of an online broker's account services?

 

• How do a specific broker's yields on individual account cash reserves compare to cash reserve yields at other brokers? And how do a specific broker's cash reserve yields compare to the average yield of taxable money-market funds?

 

• Do specific online brokerage services include hidden transaction fees? For example, some online brokers will charge transaction fees for buying and selling no-load mutual funds that are not on their no-transaction-fee list.

 

What Are the Risks of Online Stock Trading?

 

In the process of online trading, particularly frequent online trading, an investor can easily lose track of the available cash reserves in his or her account. Note that, in the case of some online brokers, if the percentage of an individual account's cash reserves falls below an allowable minimum, the broker may enact an "equity call" where they may legally sell any or all of the investor's shares to raise the account's cash reserves to the allowable minimum.

 

Another warning: online trades aren't necessarily instantaneous, especially in a fast-moving market. According to the SEC, online brokers only have a duty to seek the "best and reasonable means" of trade execution.

 

Additional Resources:

 

• About MarketWatch's Virtual Stock Exchange Game: http://vse.marketwatch.com/Game/AboutUs.aspx

 

• The Stock Market Game:

            http://www.smg2000.org/

 

• Keynote System's e-brokerage performance index: http://www.keynote.com/keynote_competitive_research/performance_indices/broker_index/broker.html

 

• Kiplinger's online broker test:

            http://content.kiplinger.com/tools/online_brokers/

 

• SEC on trade executions online:

      http://www.sec.gov/investor/pubs/tradexec.htm