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With a click of mouse, you can buy and sell stocks from more than 100 online brokers offering executions as low as $5 per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a trade in a nanosecond, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment. 

Set your price limits on fast-moving stocks: market orders vs. limit orders 

To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. 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't control the price at which your order will be filled.  

For example, if you want to buy the stock of a "hot" IPO that was initially offered at $9, but don't want to end up paying more than $20 for the stock, you can place a limit order to buy the stock at any price up to $20. By entering a limit order rather than a market order, you will not be caught buying the stock at $90 and then suffering immediate losses as the stock drops later in the day or the weeks ahead.  

Remember that your limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. But by using a limit order you also protect yourself from buying the stock at too high a price. 

 

 

 

 

Online trading is not always instantaneous 

Investors may find that technological "choke points" can slow or prevent their orders from reaching an online firm. For example, problems can occur where:  

  • an investor's modem, computer, or Internet Service Provider is slow or faulty;  
  • a broker-dealer has inadequate hardware or its Internet Service Provider is slow or delayed; or  
  • traffic on the Internet is heavy, slowing down overall usage.  

A capacity problem or limitation at any of these choke points can cause a delay or failure in an investor's attempt to access an online firm's automated trading system.  

Know your options for placing a trade if you are unable to access your account online 

Most online trading firms offer 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. Make sure you know whether using these different options may increase your costs. And remember, if you experience delays getting online, you may experience similar delays when you turn to one of these alternatives. 

 

If you place an order, don't assume it didn't go through 

Some investors have mistakenly assumed that their orders have not been executed and place another order. They end up either owning twice as much stock as they could afford or wanted, or with sell orders, selling stock they do not own. Talk with your firm about how you should handle a situation where you are unsure if your original order was executed. 

If you cancel an order, make sure the cancellation worked before placing another trade 

When you cancel an online trade, it is important to make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, don't assume that that means the trade was canceled. Orders can only be canceled if they have not been executed. Ask your firm about how you should check to see if a cancellation order actually worked. 

 

 

If you purchase a security in a cash account, you must pay for it before you can sell it 

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