Important Facts for Online Investors
Online investing offers indisputable benefits, including low transaction costs, fast access to the markets, and a wide array of information resources. But the ease with which orders may be placed raises the possibility that some investors might ignore prudent investing principles and subject themselves to an inordinate amount of risk.
Three "golden rules" for all investors:
There are several other key issues you should bear in mind when assessing your current investing strategies.
Market and Limit Orders
Stock prices can be extremely volatile, especially in the "hot" technology and Internet sectors. A stock may be up $10 one minute and down $10 the next. One way to protect yourself from getting an unexpected price when placing a trade is to use a limit order.
With a limit order, you can establish the maximum price you're willing to pay for a stock or the minimum price at which you're willing to sell. When the limit price is met or exceeded, your order is filled as soon as market conditions allow. Unlike a market order which is typically executed at the prevailing market price in a matter of seconds and may be difficult to cancel, a limit order may be cancelled any time prior to execution.
Delayed Trade Confirmations
With the huge volume of securities being transacted online, you may occasionally have trouble getting initial trade confirmations immediately after execution. The fact that you did not instantaneously receive a trade report does not mean that your order has not been filled. Avoid the temptation to re-enter the order; otherwise, you may end up placing multiple live orders for the same security that cannot be cancelled. You can check your Open Orders to verify that your order has been placed. As soon as our system receives confirmation of your trade, the order status link will be updated.
The Risks of Margin Trading
If you decide to trade on margin, you should fully understand all of the risks involved. A sudden drop in the price of a stock could cause you to receive a margin call. In this case, you would be required to deposit additional cash or securities into your account. If you do not respond in a timely manner, your stocks could be sold to cover the call, and you would be held responsible for any losses. To reduce risk, don't overextend yourself. Maintain account equity well above the minimum margin maintenance requirements, and be aware that maintenance requirements on certain stocks, especially highly volatile issues, can change at any time.
When it comes to investing, it's important to have realistic expectations. Don't be misled into thinking that frequent or day trading is a source of "easy money." These strategies can be extremely risky. If you're new to investing, you'll find a wide variety of high-quality information and investment tools available on our site, including our Online Help, to help you learn about the markets and formulate your long-term investing strategy.
Some important responsibilities go along with self directed investing: To invest smart, know the ground rules, and understand the risks. Do your homework and take only the financial risks that you are personally comfortable taking. We will continue to provide more and better educational resources as part of our ongoing commitment to your long-term financial success.
Non-deposit investment products and services offered through CUSO Financial Services, L.P. (Member FINRA/SIPC) are:
• not NCUA/NCUSIF or otherwise federally insured • not guarantees or obligations of the credit union
• may involve investment risk, may lose value