Trading stocks: Rules and Risks

 

Trade stocks through the Internet

Written by :Tao Elyaalo

I started trading stocks online long time ago; As the number of investors did not exceed a few hundred, then the matter developed until it reached more than 5 million investors in few years , and this number represents about 20% of the global stock market share, but the expectations of stock market experts indicate that the number of online investors in this field will become over 20 million at the end of the year 2020.

 

The steady increase in that trade came as a result of the expansion in the use of the Internet, as well as because the individual can personally conduct his financial investments over the web, from his home or office; The investor tracks the prices of his favorite stocks on a site, reads the latest news as soon as it arrives, and gets financial analysis from the best experts.

The investor may also issue his orders to buy or sell and monitor their implementation. He can even request to be notified by e-mail about some matters and events of particular interest to him, and the investor in stocks on the Internet may resort to a broker to act on his behalf in the process of buying and selling shares on the stock exchange.

If any Internet user thinks about investing money in this trade, he must know the rules, and the risks involved in the process of buying and selling shares on the Internet, in addition to some procedural operations such as opening an account on the Internet and the method of trading, as well as how to read stock tables? This is what we are trying to answer in the coming lines ..

Investment rules and risks.

- How to open an account and trade.

How do you read stock charts?

- Sites for trading, indicators and references.

Investment rules and risks

Online stock trading service transactions have increased significantly, whether in terms of operations, the number of customers or the quantities of shares, as a result of the increasing demand for dealing on the Internet, instead of dealing with foreign brokerage firms.

Some people may also resort to these companies as they appoint a broker to act on his behalf in the process of buying and selling Internet shares, and the advantage of dealing with companies is that they provide a service to the customer with an analysis about the best shares and the right time to buy or sell them, and accordingly there are some general guidelines when thinking about investing in the stock exchange through Internet:

1- Investor experiences indicate that dealing in this area is more efficient on sites that use the English language; Because most of the studies and reports are available in English, and it is not required that the trader be a specialist in trading stocks over the Internet, because the process of trading and transferring is technical matters that the trader will be able to within a simple period of time.

2- The investor must be aware of how to read the economic reports correctly, and take the appropriate decision whether to buy or sell at the right time, and this requires time for the investor to be able to make the best decision.

3- The basic rules for investment should not be neglected according to the directives of the sites through which to invest in stocks, and not to take into account the ease and speed with which trading takes place over the Internet so that losses do not occur.

4- Follow the instructions of the American Financial Supervision Commission, which provides some general guidelines for online traders, especially when investing in American stocks.

5- Investing in the stock market, no matter how easy it is, must involve some risk. Therefore, investors should not forget the three golden rules for investing, the first of which is: Know what to buy or sell? The second: to know any basis for buying or selling stocks, and finally to know the level of risk and determine it.

As for the benefits that will accrue to you from that investment, the most prominent of which are:

1- Online investors see that they save a lot of money they used to pay brokers in the form of commission.

2- There are no costs to open an account; Where the investor pays an amount ranging from 100 to 500 dollars, while not paying any amount for opening an investment account with companies trading stocks via the Internet.

3- The time required to open an account by traditional methods usually takes weeks to become available for you to trade shares through, while your online investment account becomes available in less than a minute.

4- Stock speculation can be conducted from anywhere in the office, from home, and even from the car whenever you have access to the Internet.

As for the risks involved in investing in stocks on the Internet, the most prominent of which are the following:

1- Online investors should always make sure that as easy as it is to profit by pressing a button, it likewise expects a loss.

2- Studies have indicated during the past years that complaints to the American Financial Supervision Committee increased by 330% in just one year, and most of them concerned Internet trading issues.

3- Crashes from the computer or from crowding on the Internet as a result of the presence of many requests on the site, whether by buying or selling; This gives less opportunity to complete the deal, and hence the investor cannot implement it; This may result in some losses, in addition to the possibility of not being able to access the Internet and not obtaining confirmation of the completion of the purchase or sale process at the required time; It is not always expected that the process or report will be completed in the same second, and the delay may be in the computer; Therefore, it is necessary to investigate and find out other ways to complete and confirm operations if problems arise on the Internet.

 

4- Beware of collective entry into the market or following the herd policy, which is good when entering local stock exchanges, but the matter differs with regard to online speculation; As there are some countries that may undertake a process of correcting internal economic conditions for them, and accordingly the central banks carry out large-scale buying and selling operations at the same time, which puts the market in a critical situation that only market makers know who control the global market for stocks and bonds and the brokers who pay Their clients follow this policy for the hidden purposes of cooperating with some central banks for the gain of the broker.

Account opening procedures

The realtor you will deal with is the one who will give you a table of steps to follow so you can open an account to invest online, but a summary of these steps:

Convert your sums from the national currency to a global currency.

- Concluding a contract with the broker stating that he will execute your orders according to certain commissions he charges according to the number of executed operations.

- Sometimes the contract stipulates a clause that concerns the broker that he is the client's agent and that he will carry out what he deems appropriate in terms of selling and buying shares on behalf of the client.

- The process of transferring the client’s funds for opening an account from the customer’s account in a bank to the broker's account in the broker's bank.

- A notification is sent from the broker to the client notifying him that the funds for opening the account have been opened with an account in favor of the client with the broker.

- The client's orders are then executed by the broker with a periodic account statement sent to the client with the value and number of his shares sold or purchased, the value of the profits he has achieved, and his question whether he wishes to transfer the profits made to any place the client desires or will increase the value of his account by a certain amount. He made a profit.

- In the event that the client wishes to terminate his dealings with the broker and withdraw completely from investing in stocks via the Internet, the client shall notify the broker until his account is transferred and liquidated with the broker.

As an example of the issue of opening an account, one of the Kuwaiti brokerage firms indicates that opening an account with it for electronic transactions requires a deposit of 500 Kuwaiti dinars, and in order to carry out transactions, the investor deposits in his account in the company the sums he wishes to invest, and all or part of the amounts can be recovered at any time. Regarding the fees that the company charges for this service, they amount to 2.5 dinars on each transaction in addition to 1.25 per thousand Kuwaiti market fees. As for the American market, it amounts to $ 18 per transaction, provided that its quantity does not exceed 3,500 shares, and more than On that, he shall pay a fee of half a US cent per share.

Online order execution

There are mechanisms of action for the stock market via the Internet in the implementation of orders for trading, as the stock market is considered a secondary market, and a secondary word here means that the financial assets that are exchanged through the stock exchange from shares that have been issued earlier.

So come with me so that we know how to execute orders for each financial market according to international classifications in this context.

- The call market, which is the market in which the desires of buyers and sellers are gathered on the Internet by reviewing the desires of buying and selling for a specific paper and then conducting an online auction until a certain price is reached at which the balance is achieved and the required quantities are equal with the offered, then the exchange begins by sending orders whether By selling or buying via the Internet to the person responsible for this within the stock exchange in order to carry out the implementation according to the requests of the investors.

The Continuous Market, and orders for buying and selling in this market can occur at any time, so any investor who wants to sell his shares puts them through the brokerage company’s website or even the stock exchange’s website and leaves a pre-order to execute the sale at a specific price. In advance and the seller satisfies him, and when this price matches with one of the buyers, he issues an order order for these securities at the announced price for that, provided that the market price is equal to this price set by the seller and the buyer is satisfied.

To clarify the process of trading on the Internet, you can look at this map: The Map of Trading in Internet Exchanges

Is there such a thing as large orders and small orders in online stock trading?

The first to implement this system is the New York Stock Exchange, and small orders are defined as those that include specific bundles of shares, each bundle is within the limits of 2000 shares, and they are dealt in by an electronic program called the Super Designated Order Turnaround over the Internet, even if this system is In the past, it is dealt with through an internal communication network between the stock exchange and the brokerage firms, in return for a subscription paid to the stock exchange, and in this system now the client sends the order directly into the main compartment until it is executed.

As for large orders, or what is known as blocks, they belong to the very large investor and very gigantic companies deal in them. Because the volume of trading in it amounts to billions per transaction, and block orders are often the market maker and the main driver for it.

There are also other types of orders:

Buying and selling involves more than just placing orders, as there are different types of orders that meet different types of requirements and are subject to some restrictions.

Market orders: immediate execution of buy or sell at the best price available in the market.

Limit orders: Execution orders at the maximum or minimum prices specified by the client.

- Stop orders: orders that are not executed except when prices in the market reach a certain level that is specified in the order.

Order period:

Day: an order that remains in effect for the day on which it is received, after which it is canceled automatically.

- Valid until cancellation: If the order is not executed on the day of its issuance, it is transferred to the following days (within 90 days), until the price in the market reaches the required level or until the order is canceled.

How to read stock tables?

Understanding direct follow-up of stock prices via rotating bars, which illustrate stock prices and indices online, is important before starting the stock purchase process; As there are certain usages used to include prices within the live or direct price bar, and there are tables of stocks that must be read before embarking on online purchases through specific terms and symbols for that, for example:

- Last: It is the last price at which the stock was traded.

-% Change: The percentage of the last change in the share price.

Net: The value of the actual change in the share price.

Bid: the last bid price.

Ask: the last ask price.

Volume: the total number of shares traded during the day.

Annual earnings per share: they appear in the stock tables under the abbreviation Div, which is the abbreviation Dividend.

Percentage of Return: YLD stands for Yield Percentage, which means the annual percentage of return per share.

The share price-to-earnings ratio: P / E Ratio, which is an abbreviation of the word (price - Earnings), and it reflects the buyers ’willingness to buy a particular share.

Open: the share price at the market opening.

Close: the share price at the close of the market.

High: The highest trading price for the day.

Low: The lowest traded price for the day.

Total shares traded daily: Daily Stock Exchange.

PF Preferred Stock

- Shares guaranteed by the company, WT is written after the name of the share, and this indicates that the company in whose name the share guarantees the purchase of the share at a fixed price that it determines in advance during a certain period.

Bad shares, written after the name of the share, indicate that the company is on the verge of bankruptcy or that the company is liquidated.

Disclaimer: this article does not constitute a financial advice. It's only for information purpose.