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How to Buy and Sell Stocks Online

The Bad News for Your Broker

By Steve Christ
Thursday, May 6th, 2010

To the uninitiated, buying and selling stocks online can seem like a daunting task.

But with the wealth of information available on the Internet these days, and the availability of discount brokers, it is easier than ever for retail investors to take control of their own portfolios.

And while that may sound like a giant leap for some investors, buying and selling stocks online is as easy as the click of a mouse.

What's more, these discount brokerages even offer their own instructions, tutorials, research tools, educational videos — and more, once you've signed up. These things make the transition that much easier.

How to Buy and Sell Stocks

The first step in the process is choosing an online broker to handle your new account.

Whether it's TD Ameritrade, E*Trade, Scottrade, Charles Schwab or another company, selecting your online broker is the most important part of the process. In that regard, keeping your needs in mind will be critical.

For instance, since we place a large number of trades each year, the cost of each trade is important, which is one reason why we like TradeKing.

With TradeKing, you pay just $4.95 for stock and options trades. Other brokerages, meanwhile (like Scottrade and E*Trade) charge as much as $14.95 for stocks and up to $19.50 for options. Over time, those charges add up.

And should you ever need help from a live broker — questions, foreign market trades, etc. — TradeKing offers that kind of support for $4.95 per trade, as well. Others companies charge up to $57.99 per trade for the same live help.

Either way, though, it is important to find a company that you are comfortable doing business with before opening an account.

Once you've selected a company, the next step is to actually fund your new account by either mailing in a check or wiring the money to the discount broker. But don't worry, each company will walk you through the step-by-step process; before long, you will be ready to make your first trade.

Market and Limit Orders

Keep in mind that there are several different types of orders that you can place to buy stocks.

The first is what's known as a market order, or an order that is placed "at the market." The upside to these is that they will be filled very quickly; the downside is that your cost per share can be much higher than you expect — especially if the company you are buying is thinly traded.

In that regard, a quick check of the bid/ask spread is always the key when placing any market order. The ask is the amount of shares for sale at a given price, while the bids are the offers to buy.

And since market orders always go off at the ask, it important to know exactly how many shares are for sale at that price before you place any market orders. Otherwise, those shares may cost you much more than you originally planned...

Long story short, only use market orders in shares that are very liquid.

A better alternative for beginners is to place what's known as a limit order. That tells your broker the maximum amount, or limit, you are willing to pay for a share. That way, you know exactly what your worst-case price will be.

In fact, there are trades you may actually do even better with by receiving some shares for less than your limit price depending on market conditions.

Even better, you can place your limit order at price well below the market and let the market come back to you, rather than forcing the action to upside. After all, stocks never go straight up or down, even intra-day.

Of course, before you buy your first stock online, it's important to practice first. After all, just because you can buy XYZ at the click of mouse doesn't means you should jump in, both feet first. Learning the ropes is an important first step.

Let's face it: even the pros make "fat-fingered" trades now and then. And for beginners, the risk of a badly placed order is even higher.

That's why it's important to "paper trade" when first learning the ins and outs of stock market orders while getting a feel for the rhythm of the market.

One way to do this is by participating in fantasy stock picking contest. In this type of game, you learn how to buy and sell stocks in real-time while taking no risk. The best part is you can actually win money and get your feet wet all at the same time.

Besides that, it's just plain fun. And once you've completed the game, you will be more than ready to start using your online account.

That's one of the reasons we've started our own stock picking contest here at Wealth Daily — to give our subscribers a shot at the big prize while providing a real time stock picking education along the way.

The details are as follows:

Wealth Daily's Stock Picking Challenge

The Prizes

  • 1st Place wins $1,000 cash plus a subscription to Wealth Trust, allowing access to all 9 of our premium investment services for life. (The lowest we've ever sold this product for is $4,495.)

  • 2nd and 3rd place winners get a 2-year subscription to Wealth Advisory, a $158 value.

How It Works

  • The contest runs from May 10 to June 8 (30 days).

  • Each player starts with $100,000 in virtual funds (there's no real money involved here... unless you win).

  • One caveat: Stocks you select must have a minimum share price of $5.

  • Let your friends in on the contest. Send them this link, where they can get info and a password necessary to register.

The Rules

  • You must be an active Wealth Daily e-letter subscriber to win. If you're not getting our free daily e-letter, go to wealthdaily.com/contest to sign up and get your contest password.

  • Only one account per person. (Filters are in place to detect duplicate registrations and suspect activity).

How to Get Started

1. Sign up for our daily newsletter here, if you haven't already. You'll get a password required to join the game.

2. Register at Marketwatch.com's Virtual Stock Exchange (VSE). They have a solid (and 100% free) platform for virtual trading.

3. Once you're registered, search for the Game ID at the VSE: WealthDaily (It's case-specific, so capitalize the W and D.)

4. Start doing research! The contest starts next Monday, May 10.

Questions? Post them in the comment section below.

So if you are ready to take the reins of your destiny and begin managing your own money, today is the day to start.

Good luck!

Your bargain hunting analyst,

steve sig

Steve Christ
Editor, Wealth Daily
Investment Director, The Wealth Advisory

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