Online Investing




Online Investing

Online investing has made the stock market available to a multitude of new investors. When these investors are drawn into new fast-moving markets, such as recent "hot" IPO’s and high tech stocks, certain risks are taken. The prices in these volatile markets can rise and fall suddenly, without warning, and sometimes without apparent reason. In these fast markets when many investors want to trade at the same time and prices change quickly, delays can develop across the board. Executions and confirmations slow down, while reports of prices lag behind actual prices. Investors can suffer unexpected losses very quickly.

You can limit your losses in fast-moving markets if you:

  • know what you are buying and the risks of your investment; and
  • know how trading changes during fast markets and take additional steps to guard against the typical problems investors face in these markets.


  1. First, you should realize online trading is quick and easy, but online investing takes time and research. Do not be drawn in by the ease of online trading without doing your homework first. Before you trade, know why and what you are buying or selling, and the risk of your investment. Making wise investment decisions takes time.
  2. With fast-moving stocks the price fluctuations may move the stock out of your intended purchase or sale price range. To avoid this use limit orders instead of market orders. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can not control the price at which your order will be filled.
  3. When online you may experience unique investing problems, such as slow connections, inability to access your online account, uncertainty as to whether your order (or cancellation of an order) went through. When your connection is slow or you are unable to reach your online account, look to alternatives for placing trades. These alternatives may include touch-tone telephone trades, faxing your order, or doing it the low-tech way--talking to a broker over the phone. When unsure as to the status of your order, do not resubmit the order or go ahead on the assumption it went through. Contact your broker to confirm, remember assumptions can cost you money.
  4. Avoid freeriding, where you purchase a security in a cash account and sell it before you pay for it. Freeriding violates provisions of the Federal Reserve Board and may incur penalties, such as the freezing of your account for 90 days.
  5. Fully understand your margin agreement, if you trade on margin. Remember, "margin calls" are a courtesy, not a requirement. Brokers are not required to make margin calls to their customers and can legally sell your securities if your account has fallen below the firm's maintenance margin requirement.
  6. Understand there are no regulations requiring a trade to be executed within a certain time. But, if firms advertise their speed of execution, they must not exaggerate or fail to tell investors about the possibility of significant delays.
  7. Finally, the ease and accessibility of online investing has created a new king of problem: the investing gambler. Be sure your activity in online investing is not really being fueled by a gambling problem. One idea which can be safely applied from gambling is "Always invest with your head and not over it".

More Educational Topics...