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Online Trading - Issues and Solutions

Investors who are trading over the Internet or online need to know how they can protect themselves against unexpected losses (especially in fast-moving markets) and what additional steps to take in order to guard themselves against the typical problems of online trading.

Online trading may be quick and easy but it still requires time and efforts.

You can buy or sell stocks from a great number of online brokers with just a click of your mouse. However, do not forget that making wise investment decisions takes time. Do your homework first and know why you are selling or buying no matter how fast you can execute the actual trade.

Online trading may be seamless and quick but it is not always instantaneous.

A number of technological problems can actually slow or prevent your orders from reaching your online firm. Some of them include: a slow modem, computer, or Internet Service Provider at the investor's end, heavy Internet traffic that is slowing down overall usage, inadequate hardware at the broker-dealer's end, etc. No regulations require that a trade should be executed within a certain time.

If you are unable to access your account online you should know what other options for placing a trade you have. Your online trading firm may allow touch-tone telephone trades, ordering by calling your broker, or faxing your order. Have in mind that sometimes turning to one of these options may increase your costs, and other times you may still experience delays when using them.

Whether you have placed an order or cancelled one, don't make assumptions, and make sure that everything has worked the way you wanted.

Sometimes investors place an order, mistakenly assume that it hasn't been executed, and place another order again. Thus, they end up either selling stocks they do not own, or owning twice as much they wanted. If you are unsure whether your original order was executed, don't rush into placing it again. Talk to your firm and clarify how to handle such situations.

In other cases, investors don't make sure that the transaction hasn't been executed when they cancel an order. You should know that you may receive an electronic receipt for the cancellation but your trade may still not have been canceled. Talk to your firm and ask them how you can check to see if a cancellation has really worked.

Limit your possible losses by setting limit orders on fast-moving stocks.

By placing a regular market order, you don't have control over the price at which the order will be filled. You hardly want to buy or sell stocks at a price that is higher or lower than the one you have in mind so you better place a limit order. A buy limit order will be executed only at a price that is not higher than your preliminarily set limit price. A sell limit order on the other hand will be executed at the limit price or higher.

If you have a complaint, act promptly.

By law, the time you have to take legal action is limited. If you have a complaint, first talk to your online firm and ask for an explanation. Remember to take notes of the answers they give you. If you are dissatisfied with the response write to the compliance department at your firm's main office by clearly explaining the problem and telling them how you want it resolved. Require a response in writing within 30 days. If you are still dissatisfied you can send a letter of complaint plus copies of the letters you have sent to your firm to your state securities administrator, the National Association of Securities Dealers, or to the Office of Investor Education and Advocacy at the US Securities and Exchange Commission (SEC).

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Opening a OptionsHouse account to benefit from their low $3.95 stock trades (currently they offer 100 free trades) is a smart idea.
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