Online trading is quick and easy, but online investing takes time.
With the click of a mouse, you can buy and sell stocks from one of the many online brokers offering low-cost trades. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. You may be able to make a fast trade, but making wise investment decisions takes time. Before you trade, know why you are buying or selling, and the risk of your investment.
If you place an order, check to make sure it was executed
If you cancel an order, make sure the cancellation worked before placing another trade
If you purchase a security in a cash account, you must pay for it before you can sell it.
To avoid buying or selling a stock at a price higher or lower than you wanted, you should place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Your limit order will not be executed if the market price quickly surpasses your limit before your order can be filled. But, by using a limit order, you protect yourself from buying the stock at too high a price or selling it at too low a price.
Some investors mistakenly assume that their orders have not been executed and place the order again. They end up buying or selling twice, which can be a costly mistake. Talk with your financial services firm about how you should handle a situation where you are unsure if your original order was executed.
When you cancel an online trade, make sure that your original transaction was not executed. Although you may receive an electronic receipt for the cancellation, dont assume the trade was cancelled. Orders can only be cancelled if they have not been executed. Ask your financial services firm about how you can confirm that a cancellation order worked.
In a cash account, you must pay for the purchase of a stock before you sell it. If you buy and sell a stock before paying for it, you arefreeriding. Freeriding violates the credit extension provisions of the Federal Reserve Boards Regulation T. If you freeride, your broker must freeze your account for 90 days. You can still trade but you must pay in full for any purchases on the date you buy them as long as the freeze is in effect.
You can avoid the freeze if you pay for the stock in full by the settlement date, using funds that do not come from the sale of the stock. You can always ask your broker for an extension or waiver, but you may not get it.