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TESTIMONIALS: Best Online Stock Trading
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Stock market veterans will tell you it is very important to do your research before selecting an online stock broker. You can look at various online websites that give impartial reviews and evaluations of stock trading software and tools. Find out what other traders and industry experts are recommending, and look at the features and fees.
Keep in mind there are various types of online stock brokers offering different trading services and levels of support. You should also be aware that some online brokers deal with clients directly, while other types of brokers play more intermediary roles, so you need to do your homework when choosing the right online stock broker for your needs.
Generally speaking, there are four basic categories of online brokers to consider.
1. Discount brokers or online brokers. Online trading fees are typically lower at many discount online brokers, but the services offered and level of support will vary. They do not advise or give any recommendations, but are very efficient at taking your order and facilitating the transactions.
2. Assisted discount brokers. They offer more services so you are not completely on your own, but is not considered a full service broker. You can expect to receive more information and assistance, though not necessarily specific stock suggestions.
3. Full service brokers. A full service broker will be available to provide you advice and recommendations on specific stocks. They will be able to assess your financial situation and identify possible investment opportunities.
4. Money manager or financial advisor. A money manager or financial advisor typically handles larger portfolios, working with investors with large sums of money to be invested. Good money manager will tend to command higher fees for their services.
Whichever you choose, you may also want to check the broker is covered by the Securities Investor Protection Corporation which will provide protection for your assets up to a certain point.
Day Trading Risks
You should consider the following points before engaging in a day-trading strategy. “Day-trading strategy” means an overall trading strategy characterized by the regular transmission by a customer of intra-day orders to effect both purchase and sale transactions in the same security or securities.
Day trading can be extremely risky. Day trading generally is not appropriate for someone of limited resources and limited investment or trading experience and low risk tolerance.
You should be prepared for the possibility of losing all of the funds used for day trading. In particular, you should not fund day-trading activities with retirement savings, student loans, second mortgages, emergency funds, funds set aside for purposes such as education or home ownership, or funds required to meet your living expenses.
Further, certain evidence indicates that an investment of less than $50,000 will significantly impair the ability of a day trader to make a profit. Of course, an investment of $50,000 or more will in no way guarantee success. Be cautious of claims of large profits from day trading. You should be wary of advertisements or other statements that emphasize the potential for large profits in day trading.
Day trading requires in-depth knowledge of the securities markets and trading techniques and strategies. In attempting to profit through day trading, you must compete with professional, licensed traders employed by securities firms.
A trader should have appropriate experience before engaging in day trading. Day trading requires familiarity with a securities firm’s business practices, including the operation of the firm’s order execution systems and procedures.
Under certain market conditions, it may be difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a stock suddenly drops, or if trading is halted due to recent news events or unusual trading activity. The more volatile a stock is, the greater the likelihood that problems may be encountered in executing a transaction.
In addition to normal market risks, you may experience losses due to system failures. Day trading will generate substantial commissions, even if the per trade cost is low. Day trading involves aggressive trading, and generally one will pay commissions on each trade.
A decline in the value of the securities that are purchased may require you to provide additional funds to the firm to avoid the forced sale of those securities or other securities in the account.
Short selling as part of your daytrading strategy also may lead to extraordinary losses, because you may have to purchase a stock at a very high price in order to cover a short position.
Minimum Equity Requirement Pattern day trading rules requires that a pattern day trader have deposited in his or her account minimum equity of $25,000 on any day in which the customer day trades. The required minimum equity must be in the account prior to any day trading activities.
Day Trading Margin Calls
In the event a day trading customer exceeds his or her trading buying power, firms are required to issue a day trading margin call to pattern day traders that exceed their day trading buying power. Customers have five business days to deposit funds to meet this day trading margin call.
EXTENDED HOURS AFTER-MARKET or PRE-MARKET TRADING
You should consider the following points before engaging in trading outside of regular market hours.
Risk of Lower Liquidity. Liquidity refers to the ability of market participants to buy and sell securities. Generally, the more orders that are available in a market, the greater the liquidity. Liquidity is important because with greater liquidity it is easier investors to buy or sell securities, and as a result investors are more likely to pay or receive a competitive price for securities or sold. There may be lower liquidity in extended hours trading as compared to regular market hours. As a result, order may only be partially executed, or not at all.
Risk of Higher Volatility. Volatility refers to the changes in price that securities undergo when trading. Generally, the higher the of a security the greater its price swings. There may be greater volatility in extended hours trading in extended hours than in regular market hours. As a result, your order may only be partially executed, or not at all, or you may receive an price in extended hours trading than you would during regular market hours.
Risk of Changing Prices. The prices of securities traded in extended hours trading may not reflect the prices either at the end of market hours or upon the opening the next morning. As a result, you may receive an inferior price in extended hours than you would during regular market hours.
Risk of Unlinked Markets. Depending on the extended hours trading system or the time of day, the prices displayed on a particular extended hours trading system may not reflect the prices in other concurrently operating extended hours trading systems dealing in the same securities. Accordingly, you may receive an inferior price in one extended hours trading system than you would in another extended hours trading system.
Risk of News Announcements. Normally, issuers make news announcements that may affect the price of their securities after regular market hours. Similarly, important financial information is frequently announced outside of regular market hours. In extended hours trading, these announcements may occur during trading, and if combined with lower liquidity and higher volatility, may cause an exaggerated and unsustainable effect on the price of a security.
Risk of Wider Spreads. The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security.
Should you decide to engage in trading outside of normal market hours (9:30 AM to 4:00 PM Eastern Time), you understand the risks disclosed above and acknowledge the Firm and its affiliates are not responsible for losses sustained due to trading outside of normal market hours, including any inability to enter an order, cancel an order, execute a trade or close a position.