by: Wenda P.
Doing business via the Internet is an ever-increasing activity among investors, and the electronic marketplace deserves equal billing with the old standard way of trading stock.
The actual buying of stocks on the Internet is a very simple process. You just follow these few simple steps:
1. Set up an account with an Internet stockbroker. You can make your initial contact either online or over the phone; but either way, you will have to quickly complete the paperwork that I discuss later in this article. Curiously, Internet brokers operating in cyberspace may be even more inquisitive than full-service, land-based brokers. Because of the impersonal nature of Internet transactions, online brokers have to rely on more specific information to gauge a customer’s temperament, character, and financial status.
2. Make arrangements to pay for your purchase(s) beforehand. Some online brokers require that you deposit money in an account with them before you begin buying stocks.
3. Connect with your broker’s Web site, and enter your password. An order screen comes up, and you type in your order. Your broker usually confirms execution of your order via e-mail. The Internet is far more than just a convenient, hassle-free way of buying stocks. Electronic communication represents a whole new way of approaching investing in stocks. Advantages of dealing on the Internet, compared with the longstanding ways of buying and selling stocks, include:
- Greater convenience in placing orders, paying for purchases, and tracking your purchases
- Speedier access to research materials to help guide your stock selection
- A wider variety of material than you’re likely to find in even the best local public libraries
- Lower commissions on transactions Trading on the Internet also has some disadvantages. After you establish an account with an Internet broker, you may discover that the ease of buying and selling stocks causes you to lose focus on your investment goals. You’re cruising out there all by yourself, without the benefit of an investment professional who says to you, “Are you really sure that you want to do this?” In addition, you may have trouble sorting out legitimate businesses from the inevitable array of people who use any opportunity to work scams.
Buying Directly from a Company
The alternative to buying stocks through a stockbroker or online is a direct stock purchase (DSP) arrangement. The good news about DSPs is that you don’t pay broker’s fees. The bad news is that most companies do not have direct stock purchase programs at all. Furthermore, even companies that offer DSPs do not make them generally available to all investors, but only to persons owning shares in the company. If you’re a new investor and the company or companies in which you plan to invest do not have a DSP available to non-stockholders, you’re simply out of luck. You can meet the requirement of being a stockholder by purchasing a single share via a broker. You can find out if a company offers a DSP by
- Calling the company and asking to speak to the investor relations department.
- Reading the company prospectus to see whether it mentions DSPs.
- Checking the Web site www.netstockdirect.com (see Figure 6-2). Enter the name or ticker symbol of the company you’re interested in, and you can find out whether the organization has a DRIP and/or a DSP. A ticker symbol is the combination of letters used to refer to a company in the stock listing. Some ticker symbols are obvious (such as IBM), while others are obscure (for example, G stands for Gillette).
Many companies with DSP programs give shareholders a discount on direct cash purchases of additional shares. And if the company has a DRIP, you can use the dividends from your DSP shares to purchase additional shares.
Be aware of two negatives that relate to direct stock purchases. First, you have to pay several fees with any direct purchase (although these fees don’t add up to much compared with full-service broker charges). Second, your trade or purchase is not executed immediately. Do not buy shares in a company just because the company offers a direct stock purchase program. Buy stocks on the company’s merits. Restricting your purchases to DSPs doesn’t make a lot of sense if your long-term goals would be better served with other stocks.
Doing business via the Internet is an ever-increasing activity among investors, and the electronic marketplace deserves equal billing with the old standard way of trading stock.
The actual buying of stocks on the Internet is a very simple process. You just follow these few simple steps:
1. Set up an account with an Internet stockbroker. You can make your initial contact either online or over the phone; but either way, you will have to quickly complete the paperwork that I discuss later in this article. Curiously, Internet brokers operating in cyberspace may be even more inquisitive than full-service, land-based brokers. Because of the impersonal nature of Internet transactions, online brokers have to rely on more specific information to gauge a customer’s temperament, character, and financial status.
2. Make arrangements to pay for your purchase(s) beforehand. Some online brokers require that you deposit money in an account with them before you begin buying stocks.
3. Connect with your broker’s Web site, and enter your password. An order screen comes up, and you type in your order. Your broker usually confirms execution of your order via e-mail. The Internet is far more than just a convenient, hassle-free way of buying stocks. Electronic communication represents a whole new way of approaching investing in stocks. Advantages of dealing on the Internet, compared with the longstanding ways of buying and selling stocks, include:
- Greater convenience in placing orders, paying for purchases, and tracking your purchases
- Speedier access to research materials to help guide your stock selection
- A wider variety of material than you’re likely to find in even the best local public libraries
- Lower commissions on transactions Trading on the Internet also has some disadvantages. After you establish an account with an Internet broker, you may discover that the ease of buying and selling stocks causes you to lose focus on your investment goals. You’re cruising out there all by yourself, without the benefit of an investment professional who says to you, “Are you really sure that you want to do this?” In addition, you may have trouble sorting out legitimate businesses from the inevitable array of people who use any opportunity to work scams.
Buying Directly from a Company
The alternative to buying stocks through a stockbroker or online is a direct stock purchase (DSP) arrangement. The good news about DSPs is that you don’t pay broker’s fees. The bad news is that most companies do not have direct stock purchase programs at all. Furthermore, even companies that offer DSPs do not make them generally available to all investors, but only to persons owning shares in the company. If you’re a new investor and the company or companies in which you plan to invest do not have a DSP available to non-stockholders, you’re simply out of luck. You can meet the requirement of being a stockholder by purchasing a single share via a broker. You can find out if a company offers a DSP by
- Calling the company and asking to speak to the investor relations department.
- Reading the company prospectus to see whether it mentions DSPs.
- Checking the Web site www.netstockdirect.com (see Figure 6-2). Enter the name or ticker symbol of the company you’re interested in, and you can find out whether the organization has a DRIP and/or a DSP. A ticker symbol is the combination of letters used to refer to a company in the stock listing. Some ticker symbols are obvious (such as IBM), while others are obscure (for example, G stands for Gillette).
Many companies with DSP programs give shareholders a discount on direct cash purchases of additional shares. And if the company has a DRIP, you can use the dividends from your DSP shares to purchase additional shares.
Be aware of two negatives that relate to direct stock purchases. First, you have to pay several fees with any direct purchase (although these fees don’t add up to much compared with full-service broker charges). Second, your trade or purchase is not executed immediately. Do not buy shares in a company just because the company offers a direct stock purchase program. Buy stocks on the company’s merits. Restricting your purchases to DSPs doesn’t make a lot of sense if your long-term goals would be better served with other stocks.