The virtual trade
Investing online sounds great. But don't try it at home without a very good game plan.
By Paul Lim
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So you're excited about the prospect of trading stocks, by yourself, via your home PC. But you're nervous about taking the plunge. Congratulations. You've just joined an important trend - and your reservations make you a wise and discriminating individual. The truth is that online investing, while a wonderful technological innovation, should be approached with caution and a solid game plan. Besides sorting through a host of brokerages offering varying levels of research and customer service, you'll need to familiarize yourself with each company's commission structure and fees. Beyond that, you'll face some tricky decisions about what kinds of trades you'll execute and how often. Still thinking to yourself, "Hmm, maybe I can beat the pros...maybe I can beat the S&P 500 index"? Don't count on it. But if you're willing to do a lot of homework, you can do a pretty good job. We're here to help. Because despite the potential pitfalls, several developments have brought Internet trading out of the realm of Buck Rogers and into the reality of the average investor. Recent technological leaps have made it possible to trade reliably on a home computer. At the same time, online brokerages have dropped prices and increased services. What's more, the recent raging bull market - where even novices have been earning 20%-plus annual returns on their money - provides investors a forgiving testing ground. Says Piper Jaffray analyst Bill Burnham: "Now is about as good a time as there's ever been to trade stocks online."
If mutual funds marked one of the first steps in the democratization of investing, online stock trading surely represents another. But while mutual funds were revolutionary - letting the middle class invest small amounts of money safely in companies throughout the world - online trading is devolutionary. We no longer need a Wall Street broker to initiate a trade for us. All we need is a computer, a relatively fast modem and as little as $7.95 - or in some instances, nothing - to buy or sell thousands of shares of a company's stock.
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