Posted by Zoe Geoffrion , on Nov, 2015
The idea of trading online and making truckloads of money has enticed more than one excited investor over the years. Yes, there is money to be made by trading online – but there are also many pitfalls to watch out for, and unscrupulous brokerage firms that are ready to take your money and run. For new investors, the trick is to know how to open an online trading account that you can trust. Doing your due diligence and research upfront can save you thousands of dollars down the road.
Investing is a worthwhile venture, especially if you’re in it for the long term. With an average rate of return of 8% annually, it’s clear that the biggest rewards will go to stock investors who are patient.
Have Cash on Hand
Before you open an online trading account, it’s important to have some cash on hand to deal with unforeseen emergencies. You need to have cash to deal with a broken furnace in the middle of February or a flight across the country in case a family member dies. Try to have six month’s salary in your bank account (or under your mattress) at all times.
Choosing your Trading Platform/Brokerage
Before you open an online trading account, you’ll have to ask yourself what type of investments you want to own. A brokerage account is needed for stock investors and exchange traded funds. Online firms are a good place to start if you’re a new investor. Many are considered discount brokers, and cost less than full service brokerages. This means you keep more money per trade; but, you will have to do most of the research yourself, and choose which stocks you want to invest in. You will not receive any advice from the firm.
Be careful not to choose a brokerage firm that offers the most perks and lowest costs, just for the sake of saving money. Again, you’ll have to do your due diligence and research to make sure that the firm is reputable and trustworthy. You can do this by reading online reviews, and searching investment forums for other people’s input on different brokerage firms.
For the most part, especially as a new investor, passive beats active, particularly for saving fees. Choose a stable stock or mutual fund, and plan to hang on to it for the long term. Buying and selling stocks on a daily or weekly basis will rack up fees that can overshadow any profits made.