With a wide range of online platforms now available, investing in today’s fast-moving financial markets has become more accessible than ever. However, choosing the right online trading platform can be a bit daunting, especially with so many options to consider. To help you get started, here are the essentials of online investing and key factors to keep in mind before making your first trade.
Choosing the Right Online Broker
When selecting an online broker, several important aspects should be evaluated:
Regulation
Ensure that your chosen broker is legally allowed to trade securities. You can check this by using the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck tool to verify the broker’s credentials.
Platform Security
Protecting your personal information and funds is critical. Look for platforms that offer enhanced security measures like two-factor authentication (2FA) and alerts for login activity. It’s also important to ensure that the broker will not share or sell your private data to third parties.
Fees and Commissions
Active traders should carefully examine trading fees, as they can quickly accumulate. While many discount brokers advertise zero commission trades, they may generate revenue through other methods, such as wider bid-ask spreads. Be aware of any additional fees, such as minimum deposit requirements, account maintenance fees, or charges for inactivity, as some brokers impose fees if you don’t trade within a certain period.
Product Offerings
Before committing to a platform, make sure it supports all the financial products you want to trade. For instance, if you’re interested in trading stocks, ETFs, options, or cryptocurrencies, check that these options are available. Some platforms, like Robinhood and Webull, even offer cryptocurrency trading and have begun rolling out crypto wallets for their users. Beginners might also want to consider platforms that offer practice accounts, allowing them to simulate trades without risking real money.
Online Reviews
It’s helpful to read customer reviews to gauge the overall user experience with a particular platform. Pay attention to feedback about customer service, platform ease of use, and any hidden fees. Look for patterns across a variety of reviews to get a clear picture of potential advantages and downsides.
Understanding Basic Order Types
A key aspect of online investing is understanding the different order types available on most platforms. Knowing when and how to use each type can help you achieve better trade execution and minimize risk.
Market Order
A market order allows you to buy or sell a security at the best available price. For example, if the bid-ask spread for a stock like Apple (AAPL) is $180.00–$180.10, a market order to buy would get filled at the current ask price, $180.10. This order type is useful for traders who prioritize fast execution.
Limit Order
A limit order allows traders to set the maximum price they are willing to pay for a buy order or the minimum price they are willing to accept for a sell order. For instance, if a trader wants to sell Apple stock at no less than $200, they could place a sell limit order at that price. Limit orders are ideal for those more concerned with price accuracy than immediate execution.
Stop-Loss Order
This order type helps control risk by triggering a market order when the security reaches a specified price. For example, if you bought Apple stock at $200 and wanted to limit your loss if the price drops below $150, you could place a stop-loss order at $150. When the stock hits that price, the order becomes a market order and is executed at the next available price, helping you minimize losses.
Take-Profit Order
Take-profit orders automatically close an open position when the price hits a predetermined target, locking in gains. For example, if a trader notices that Apple’s stock tends to hit resistance at $180, they might set a take-profit order at $179. If the price reaches this level, the position is sold to secure the profit.