How Does Online Stock Trading Work?

Online stock trading is simply the new way to trade stocks. Way back in the 1920s, only the very rich or very famous owned stocks. Now, the situation is totally different – everyone and anyone can own stocks. All they need is some money, a computer and a fairly good financial history. Although it’s now easier than ever before to own stocks and shares, that doesn’t mean that you should go into it lightly. Read on to learn about how online stock trading works in part one of our guide, outlining the steps you need to take to open an account.

How Does it All Work?

Online stock trading is actually simpler than you might think. You open an account through a brokerage, buy stock, sell stock and then the idea is that you make profit on the stock that you sell. But how do online trading accounts work?

Opening a Trading Account

The safest way to trade stocks is through an online brokerage. When you apply to open up an account with any online stock trading brokerage, you’ll be asked a number of questions about your financial history, your current financial situation and how much money you have to invest. This step isn’t necessarily about accepting or denying your application – instead, it’s about finding out which account is right for you. No brokerage company will give you an account and allow you to trade stocks that they don’t think you’ll be able to cope with. Personal information, such as your full name, address, previous addresses, social security number and possibly more info will also be required so that the brokerage can track your investments – this really just ensures that you pay your taxes!

Personal or Joint

You can also choose between a joint and personal trading account. You can also set up accounts in the names of your children in order to set up a trust fund for them, or you can even set up a retirement account.

Cash or Margin

Generally, there are two different types of online trading accounts – cash accounts and margin accounts. Cash accounts work in the same way as your normal bank account. If you want to make a purchase, you need to have enough funds in your account in order to complete the purchase. You can make withdrawals and pay for things using your cash account. A margin account is different – it allows you to borrow credit from the brokerage firm in order to buy more stocks.  In order to borrow money, you must have at least 50% of the money that you want to borrow in cash and stocks. If you want to purchase $2000 in stocks, you need to have $1000 in stocks and in cash in your account.  It’s as simple as that!

Come back next week to learn about how to control your investments, how much money you need to keep in your account at all times and the trading process. Online stock trading can be very lucrative, but you need to know what you’re doing before you get started!

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