BOMBAY, 15 April — Today, the world has become a much smaller place. With the advent of the revolutionary Internet or more popularly referred to as the Net, the earth indeed seems to have shrunk into a monitor. You be in any part of the world, yet communicating with your homeland is now just a “mouse-click” away. A person hiking on the Himalayas can log on to the Net and know the latest cricket scores of the match being played in West Indies. And not just that, from your holiday in Timbuktu, you can take a break and check into the ups and downs of the stock markets and accordingly shuffle your portfolio.
Yes, Net has made life easier, a lot easier. Earlier, trading in stocks meant going to the trading floors and shouting oneself hoarse to either buy or sell the stock. Then it improvised to calling up your broker on the phone who in turn would buy or sell the stock online. Now trading on the bourses is just a click away, one can just log on and enter the market. With the click of a mouse you can have access to equities, bonds, commodities, international markets anything anywhere in the world seems to be just a mouse click away.
But before you click your mouse, remember that just the infrastructure availability will not turn you into a successful investor. A lot of homework needs to be done before you log on and execute. And that is precisely what this article is all about, the perils and merits of investing online.
The first golden rule of online investing is — do a complete and thorough research before committing on investment. Before you trade, know why you are buying or selling, and try to know all that you can about the company, industry and general micro and macro trends which will impact the scrip. Remember, you may be able to make a trade within a fraction of a second, but making wise investment decisions will take time.
Once you have done the research, set yourself a limit order which is an order to buy or sell a security at a specific price or range. 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. By using a limit order you are protecting yourself from buying the stock at too high a price.
Once this is done, now you have to place the order, either to buy or sell.
Before you do that, look at the alternatives offered. Most online trading firms offer alternatives for placing trades and this may be via 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 when you are depending on technology to trade, that too your hard earned money, keep in mind the fact that the technology could run into a snag.
Online investing takes time, it is not always instantaneous: Problems could occur if 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. A capacity problem or limitation at any of these choke points can cause a delay or failure in an investor’s attempt to access an online firm’s automated trading system. After all this, it is often seen that investors sometimes place the order and then assume that it is done and place another order. They end up either owning twice as much stock as they could afford or wanted, or with sell orders, selling stock they do not own. So always get your orders confirmed.
The same goes for order cancellation. Although you may receive an electronic receipt for the cancellation, don’t assume that means the trade was canceled. So please, confirm and reconfirm your orders! But more important than all these facts which will help you trade online wisely is the right choice of the right online broker. And while making this choice, speed of execution and commission should be foremost. Commissions are important as more online brokers have entered the market, thereby reducing the commission prices. Speed of execution is another equally important factor. Keep a sharp look for the speed at which the orders are executed.
Also, find out how the broker alerts investors when trades go through. Some brokerage sites require investors to check an execution screen, while other firms send an e-mail alert. You should, at the least, get a trade confirmation the next business day.
And when you trade online, the ease at which use the site is also of significance. Test out different websites and see how quickly you can get the information you need. Are you able to access accounts easily, and fill out forms for accounts online? Try out a few sites, see how you feel with the tools, research and portfolios. Bigger isn’t always better in this category, some big sites are tough to navigate. For the site to be easy to use, you shouldn’t have to look around for information, it should be easily findable.
So armed with this information, maybe you can now try your luck at online trading instead of making expensive calls to the broker or waiting for replies to your e-mail queries.
