As more and more technologies go online, people are finding new and exciting ways to turn a profit with the power of the internet. Entrepreneurs are taking advantage of the world’s connectivity to power their marketing and provide services to customers in previously impossible ways. The everyday person can also take advantage of this brave new world of online business and finance by using investment technology to work the markets.
With the right tools and knowledge, you too can invest online and make your money work for you. To keep your money safe, however, you will also have to learn about and understand the processes and technology of the present day so that you can make informed decisions about your finances.
The History and Basics
In the investing days of yore, stocks, bonds and other securities were sold on the trading floor. Brokers shouted over each other to be heard much like on the movies from that bygone era.
Trading was mostly an in-person ordeal until the arrival of the telegraph and telephone. These advancements in technologies allowed brokers to do business from afar, but it didn’t quite give the average citizen what they needed to get into the game. Investors still had to call their broker over the telephone, place an order which could take days to fill, then wait weeks for updates on how the accounts were doing.
When the internet came along in the late 80s and early 90s, investment began to open up to the masses. Regular individuals got the opportunity to begin investing casually to supplement their incomes. From the privacy of their own homes, private individuals became investors, funneling small amounts of money into stocks and the like to make even more money.
Now, with the rise of smartphone and broadband technology regular people, not just brokers and stock enthusiasts, can invest anytime, anywhere. Not only can they invest faster, but they also have access to information in real time to help them make decisions and keep an eye on the markets. We’ve come a long way from yelling at a broker in a crowded room and taking down orders with a pencil and paper.
What Are the Advantages?
Speed and ease of use are some of the main factors of online trading that give the average person access to market investing. Instead of waiting for a letter detailing the goings on of their money, investors can see how it is doing as everything happens. Their orders go through much sooner, meaning they can take advantage of ever-changing markets better.
There is also the cost factor. Trading online is much cheaper than dealing in person or even over the phone. The fees that brokers charge are much lower for internet transactions because they are largely automated; firms don’t have to hire as many people when the computers are doing the work.
These lower fees also encourage more investors who would be otherwise put off by high fees. Lower bars for entry means more players in the game and more money being moved by volume.
How It Works
Market trading online is still done mostly the same way as it has been for decades of not centuries. An investor puts in an order to a broker to buy stocks or otherwise invest their money and the broke then, for a fee, completes the transaction. There are some key differences, though.
An online broker is usually not a single person, but a company that is providing the service. The average online investor does not have a personal relationship with a broker. Instead, the company manages the transactions with the help of automation. This keeps costs down for all parties involved and allows for higher and more frequent volumes of trades.
With a click or a tap, investors can get their money moving, set up automated responses to fluctuating markets and manage the cash that they make into different accounts, which could even be linked to the broker service they use.
How to Invest Online
The first thing that you need to do when starting to invest online is to find the right broker. There are hundreds if not thousands of companies out there that offer online investing opportunities, and they aren’t all the same or even trustworthy for that matter. Before you open a brokerage account, do your homework and rigorously research any broker you are considering.
Remember that since much of online trading is automated, they will not hold your hand unless you ask for it and that costs extra. You want a company that will provide you with easy to use tools and reliable information as well as opportunity investments that suit your experience and needs.
Some things to consider when choosing a brokerage company:
- Fees: Will you be making frequent trades? Those transaction fees can add up. Not trading too often? Watch out for inactivity fees.
- Investment Total: How much money are you planning to put into this? Some companies have minimums.
- Guidance: How much advice and direction will you need and how often. Again these helping hands come with price tags.
Choosing the Right Way to Invest
When you are just starting out, it is important to play it safe. Failures early on can demoralize you or worse, clean out your capital. The best way to invest money, in the beginning, are they ways that offer decent profit potential with minimal possibility of loss.
Avoid fancy “get rich quick schemes” like shorting stocks. This often maligned yet glamorized technique is a high-risk, high reward way of investing that banks on a company failing. While most successful professional investors have short sold in the past, beginners and less serious traders should stick to the sure thing or at least the thing that can’t bankrupt you.
A good rule of thumb is the 3:1 ration. This guideline means that your expected profits should be three times as much as your potential losses. So, In this way, you can plan for a decent profit without your eyes getting too big for your stomach. You certainly won’t turn a profit every time; everyone takes losses now and then, and you won’t be any different. But, keeping this guideline in mind help greatly to minimize your losses and keep you in the black in the long run.
For example, if you expect that a stock worth 100$ will rise to 130$, only let the stock fall to 90$ before cutting it loose and taking the loss. Once you reach the 130$, you can reevaluate whether or not to sell it or hold onto it, but hit the brakes as soon as it hits the minimum value to be safe. How can you do this so precisely? Online investment technology can help.
Using the Tech
You can set place market, limit, stop, stop-loss, and stop-limit orders easily with the investment technology provided by online brokers. In a nutshell, these actions go into effect once certain criteria are met. That loss limiting technique mentioned above can be put into effect, for example, with a stop-loss order. The broker will automatically sell off the stock if it falls to a lower limit set by you.
That of course is just one of the many ways that internet investing makes things easier for you. As with many other aspects of our modern lives, computers have taken on some of the burdens and removed some of the mystery from online investment. Research the capabilities of your chosen broker service and don’t stop there. There are mountains of books out there to give you advice as well as entire TV networks like CNBC devoted to teaching people about investing in the information age.
Exploring the Options
As you learn more about trading online, explore more options and avenues of investment. Previously esoteric asset classes have been brought within reach of the average investor as well thanks to advancement in technology and ease of use.
These alternative assets include tangible valuables such as real estate, commodities, precious metals or even rare coins and antiques. There are alternative investment management firms out there who specialize in these types of assets, so if that interests you then they are worth looking up.
If you are just looking for a different type of company to investment besides the traditional big business, consider tech startups. They are some of the fastest growing (albeit sometimes volatile) sectors of investment today. Technology investment firms specialize in finding the company with the hottest new app that’s going to break through and investing in it to get in on the ground floor and ride the wave to the top.
Preparing for the Future
Investment technology has arrived for the masses, and it’s only getting easier from here on out. Now is a great time to learn the ropes of online investing, because the bar for entry has never been lower. With just a small amount of starting capital, it is possible to get your technology to help you get your money working for you.