Online Stock Trading

Nothing helped better extend the stock market to the masses than the invention of stock trading through online brokers. By allowing everyone to access the stock markets, literally trillions of new investment dollars poured into the market, and some have suggested that it may have been such expansion that brought about the early 2000’s tech bubble and dot com boom.

In many ways, the democratization of the stock markets has helped the individual investor. Trading costs have plummeted since the 1990s, and the amount of information available to the individual investor today rivals the information given to institutional investors in the decades prior. Make no mistake about it, there is no better time to start stock trading online than right now.

Trading or Investor
One of the most important distinctions an investor must make about themselves or their portfolios is their goals about what they want to do with their money. There is a very clear dividing line between stock trading and stock investing, and few new investors tend to realize such a difference exists in the first place.

A stock trader is someone who is generally uninterested in the actual stock being traded, and instead focuses more of his or her interest on how the shares of the stock will change in value over time. So, with that said, a stock trader may enjoy a greater level of risk than the stock investor, and may also require more from their brokerage account than does a long-term investor.

A stock investor is someone who sees the stock market as a place where wealth is generated, and where riches are to be made over time, not overnight. The investor is more likely to put emphasis on the long-term credentials of each investor, and generally requires more research and information where a stock trader would prefer better charting and trade execution.

By understanding your goals and competencies, you have already helped shape your investment objective, a very important step in seizing the stock markets and making money or growing wealth. While most every investor can be, or is a current stock investor, not everyone is suited for stock trading. Stock trading requires a strong sense of willpower, and an understanding of the stock market that investors simple don’t need. A trader is, in every sense of the word, a rational gambler.

Trading vs. Investing
The very basis of stock trading is nested firmly in the understanding that the underlying stock itself doesn’t really matter. Instead, traders see that the market may be temporarily underpricing or overpricing a specific stock compared to the past, or based on events that the trader sees as insignificant, or perhaps more insignificant than the rest of the market.

The trader, in making each trade, essentially makes a move that says to the rest of the market, “Hey, I think this stock is undervalued, and that you’ll be willing to pay more for it in the future.” Contrast that to the investor who might otherwise say, “Hey, this stock is a very good stock, and whether or not it is undervalued or overvalued right now doesn’t matter all that much because I don’t plan to sell it for a very long time.”

In many ways, the length of time the investor and the trader assign to each trade also shapes how they approach it, the leverage that they may or may not use, and also their goals for making money. The trader, for example, may buy a $10 stock hoping to sell it minutes later for $10.10. The investor, however, may buy the $10 stock over a period of many years, hoping to sell it for a higher price in the future, or receive cash flow dividends over time as part of the company’s operations.

There is no right or wrong approach. However, consider very honestly the fact that many a millionaire has been made in stock investing, where only a few people will ultimately become millionaires from stock trading. To retire, the stock investor almost always requires $1 million, while the stock trader may see a long-term perspective to be damaging to bigger short-term profits and loss.

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