Online brokerages are all the rage, but what are they and how do they work?  In today’s blog post, we will answer this question as well as discover what online trading means for your investing strategy, and how can we find the best online brokerage for your investing and trading needs.

What is Stock Trading?

Stock is simply ownership of a company.  Stock comes in shares and is generally traded on public markets such as the New York Stock Exchange (NYSE) or NASDAQ.  Each share of stock you own represents a piece of a company.  For example, if you own 100 shares of Apple (one of the largest companies in the world), which has about 1 billion outstanding shares, you then own 0.00001% of Apple!

(100 shares) / (1 billion outstanding shares) = 0.00001% ownership

Why would I want to own stocks?

Historical inflation data shows that U.S. dollars have typically lost 3.26% of their value each year!  This means we should avoid having much of our net worth in cash at any given time.  But where do we put it?  Savings accounts these days offer practically nothing.  The answer is stocks.  While cash is losing its value, stocks have historically provided a long-term positive return of 9%:

It’s important to note that investing in the stock market does entail some risk.  That said, with a long-term investing horizon these risks should be severely mitigated.  In fact, there has been only one ten-year period in which investors in the stock market as a whole lost money, and this would have involved a very small 1.3% loss for investors who purchased stock immediately before the Great Depression.

Why Online Stock Trading?

Traditionally, investors would call up their broker to place orders for stock.  This process was cumbersome, and most importantly expensive.  With the introduction of discount online brokerages, investors with both small and large portfolios now have access to almost any financial market.

Is Online Trading Safe?

Just like your bank account, accounts with online brokerages are FDIC-insured so that in the case of any unforeseen problems, the US government will reimburse investors.

How do I get Started with Online Trading?

Online trading is easy!  To get started, head over to our comparisons and reviews to find the best online brokerage for your trading and investing needs.