Online trading is a term that is thrown around often, but learning how it works and how you can start doing it yourself is harder to understand. There was a time that trading was only possible through a broker who placed orders to buy or sell on behalf of people. Now, anyone can process a trade online without any help. Before you can begin online trading, its important to understand how the process works and some key terms.
When you process an online trade, you are purchasing a small piece of ownership in a company. This is known as a share. The more shares you have, the more pieces of the company you own. The value of the share can fluctuate based on many factors, including how well the business is doing and any future plans that will make them more money. If the business makes money, you may get what is known as a dividend. This is a portion of the profits that the company made.
Although online trading does not go through a person like in the past, it does go through an online trading company known as a broker trades prime. Choosing the right broker is important because they will be responsible for handling your money during the process of your initial purchase and any trades you make after. When you look for a broker, make sure to look into the fees they charge and whether or not they want you to have a minimum investment. You should also check to make sure they are reputable and have proper security in place before placing your money in their hands.
Once you choose a brokerage, you will have to set up your account. The brokerage will ask for some personal information, including your address and social security number. This helps the brokerage determine what type of tax documentation to send you and report your income from your shares to the IRS. Once your basic information is inputted, you have to select the right type of account for you. You can choose to fund it with your own money, which is called a cash account, or borrow extra money from the brokerage, which is known as a margin account. Due to federal regulations, the brokerage can only lend you 50 percent of what you want to purchase in stock. You have to have the other half in cash in the account.
Once you’ve placed money in your account you are ready to start trading. Before purchasing any stock, you should research the company, their history and future plans, and the current stock price. Once you’ve chosen the stock, you can place an order for the amount you want to buy. You can issue the order for the price you want to pay and how long you will be willing to pay it for. It takes time to find a seller who wants to sell their stock and is ready to take your offer, so it can take time to process the trade.