It's very tempting, and it sounds great - to be able to electronically trade and make money every day trading from home or office!
But the truth about how electronic on-line trading is sold to the public is an ugly story. No one you talk to about this will admit it! No surprise there!
But you can always count on us to shed light on the truth behind the myth, that will prevent you from disaster!
Brokerage firms decided to set up marketing companies that would offer the ability to set up offices and make money by advertising that you can now trade from their offices in your community and they would make a small fee every time you execute a trade.
Most of the people that would operate offices know absolutely nothing about trading and even less about economics.
They would hire a person to teach the aspiring traders how to use the electronic trading system.
The person teaching in most cases never even traded in stocks before in his life, or had no experience trading and probably never even set foot in a real trading department of a brokerage firm.
The result is a disastrous combination of the inexperienced, incompetent managers and teachers instructing inexperienced aspiring traders!
The truth of the matter is that most people are not successful trading in this environment. Not because on-line trading "doesn't work," but because they're not taught how to do it properly!
The people that are operating these offices expected it to be as simple as running a coffee shop.
They had what I call a casino mentality!
They thought that all they had to do was open an office and people would beat down their door to get in.
They didn't realize that if people lost money they would quit trading.
The owners of the offices were not equipped to continually train the traders and offer support and on-going advice to insure the traders success.
See, in the beginning it was very simple.
While watching a screen, as soon as you saw offers fading you would obtain an execution at the offer, then simply sell the stock when it traded up a certain percentage.
That worked like shooting fish in a barrel when there was only about 300 guys trading back in the early days.
Now you have 600,000 or more guys trying to trade that last offer before the stock goes up!
Market makers are also very shrewd cats. They know how to trade against the other traders and take advantage of their weaknesses (which is immediately selling the stock they bought if it doesn't go up).
Now, Really ...
Who Is the Idiot?
Remember, when you buy or sell, somebody is on the other side of the trade ...
Do you really think that you know more than this other person?
So how do you make money with electronic on-line trading?
It's still a wildly profitable way to make a living!
Offering you complete freedom to be your own boss and work on your own terms.
Though on-line investing isn't for everybody, it can be a powerful tool for investors who are disciplined about research, make carefully reasoned decisions and maintain a balanced portfolio.
If you are new to on-line investing, don't put your entire life savings into an on-line account. Start with a smaller sum, which will be easier to handle and keep track of. Once you feel confident, you can then decide to add more money to your on-line account.
You really have to be extremely careful because "the game" has changed dramatically and only a handful of traders have kept up with the changes.
The Golden Rules of Investing:
The U.S. Securities and Exchange Commission released a public statement warning of the potential dangers of undisciplined on-line investing. In it, they outline three "golden rules" for all investors, with which we wholeheartedly agree:
1. Know what You Are Buying:
Do your homework before buying or selling a stock. Look at the fundamentals and understand the company's products and services.
2. Know the Ground Rules:
Today's markets are moving faster than ever. It's imperative to know the rules under which you transact.
3. Understand the Risks:
All stock investments entail risk. Keep in mind that stock prices go up and down, and you can lose money 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 will be 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 here on our site to help you learn about the markets and formulate your profitable investing strategy.