Internet Stock Trading

Almost everyone can enjoy the freedom of trading stocks on the internet.  It is easy to begin.  The three basic steps are:

  1. Open an account with an online stock broker
  2. Order internet service
  3. Purchase a computer

Online Stock Brokers

You should open at least two brokerage accounts.  Both internet stock trading accounts should be margin accounts.  Margin accounts give you the ability to sell short stocks. You want the ability to short sell stocks when the trading environment warrants it.  The stock market goes up as well as down and you want to be able to participate on the down moves by short selling stocks. 

The reason why you need at least two internet stock trading accounts is because you need to be prepared when one of your internet stock trading accounts goes down.  It is not a matter of "if" but a matter of "when" you lose access to one of your internet stock trading account.

It will happen and you want to be prepared for such a scenario.  For example, you have bought some stocks in one of your internet stock trading accounts.  Suddenly, your internet stock trading account goes offline and you can't access your brokerage account to trade stocks.  Your account balance become vulnerable to big losses when the stocks start to nosedive.  You frantically dial your broker's phone number to tell the trading desk to close out your long position.  However, the phone lines at the brokerage firm are all busy because it is jam with calls from other clients who are also trying to call them at the same time.  If you have another internet stock trading account, you can short sell the stocks to hedge against any further losses.  If you are an aggressive trader, you can also consider short selling additional shares.  You will use your internet stock trading accounts to switch from being net long to net short.  If the stocks continue to fall, the profits that you made from short selling the stocks will be more than offset the losses from the initial long position. 

Trading Insight:

Why would one be aggressive short seller at this time?  If you are trapped long in your internet stock trading account, chances are that other traders are also trapped long in their internet stock trading account.  They have not been offered any opportunity to sell and they will be sellers at a later time when their internet stock trading account comes back online.  You can take advantage of that situation by switching from a net long stock position to a net short stock position.  You can turn a potential damaging situation to your pocketbook into a profitable opportunity by being more prepared than other traders.

There are two additional features that you would want with your internet stock trading accounts.  Make sure the brokers that you select support the following:

  1. You will need direct access routing with your internet stock trading accounts.  This means you have the ability to route your orders.  You decide where to send your stock orders and it will not be the broker's decision.
  2. You will need the ability to trade Pre-Market and Post-Market.  This means you can trade stocks before the market opens and after the market closes.

Internet Connection

You want to get the fastest speed as possible for internet stock trading.  Speed does matter when it comes to trading stocks over the internet.  You want at least a DSL internet connection.  DSL internet connection is better than cable internet connection.  Cable internet providers usually advertise more bandwidth than DSL connections.  However, don't be fooled by the cable internet advertisement on its message about internet speed.  The cable industry has dirty tricks to fool unwary internet subscribers.  Internet stock traders will be more impacted by these tricks than the average internet users.

  1. Latency matters just as much as bandwidth.  Both Cable and DSL providers advertise on their bandwidth service.  However, DSL has lower latency than cable and you want low latency internet connection.  Latency is the amount of time it takes your execution orders to buy and sell stocks to travel from your home or office to your internet stock brokers' computers.  Together, latency and bandwidth define the speed of your internet connection.
  2. You are sharing a connection with other cable internet subscribers.  This can slow down your internet speed when your neighbors are using the internet.  In contrast, DSL internet connections are not shared.  You have a straight connection to central hub.  This means your neighbors internet usages will have no impact to your internet stock trading speed.
  3. Sharing internet connection on cable also means your neighbors have the ability to eavesdrop on you by sniffing the internet traffic going through the cable.  In contract, DSL is a dedicated connection.  The physical internet wiring is direct from your home to the nearest DSL hub.  This means you have a more secure transmission from your computers to your internet stock trading accounts.
  4. Cable internet companies adopted a policy of capping your internet speed if they deem you as a heavy user of the internet.  This clause is included in your service contract.  This means your internet speed will be below what your expected when you initially signed up for their service.  It's a over-promised and under-delivered business model that have a big impact for people who are engaged in internet stock trading because speed matters more to them than to casual internet users.  If you are too slow, then it can mean the difference between making a profit or taking a loss.  Your internet speed can be capped to a lower connection speed at crucial moments when you are trying to execute orders to buy and sell stocks online.

Computer Hardware

You want to have 2 computers, one desktop and one laptop.  At a minimal, the hardware specs are

  1. Intel Core 2 Duo CPU 2.00 GHz
  2. 3 GB of RAM

I prefer Intel over AMD because Intel CPU runs cooler.  However, AMD CPU can still be used for internet stock trading but you might experience some heating issues during the summer months.  Heating is an issue with fast computers.

You also want a quiet computer as possible.  You want to pay attention to the noise decibels of the fans in your computers.  There is fan on the CPU, one to two fans for the power supply, some computer cases comes with fans on the both sides of the casing, and some graphics cards also have fans.  All these fans make for a noisy computer.  The hard drives also make a whining noise when they spin.  Sitting in front of the computer all day and listening to all these noises in the background can detract your concentration from internet stock trading.

The desktop computer will be your everyday computer for internet stock trading.  The laptop will be your backup.  If the electricity goes out or weather related evacuation, you can grab your laptop and continue to manage your stock positions while you are away from your home.  Also, if you are traveling for business or vacation, you can bring your laptop along and occasionally check on the stock market. 


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