Candlestick Trading Blog

---

Buying stocks on margin is a very high risk trading strategy that should be used only by very experienced investors. There are potentials for a very high profit, but of course with high risks for profit comes high risk for potential loss. Buying on margin is the borrowing of money from a stock broker to purchase stock.  Basically, it can be thought of as a loan from your broker. How it works is you have to open a margin account which typically requires that you set a minimum amount of equity at $2,000. This means that you have to put at least $2,000 in an account, and the broker loans this amount to you in the form of cash. This cash then must go towards the purchase of stocks. In return for the loan you have to pay interest. The loan in the account is collateral and if the value of the stock, or stock price drops sufficiently, the account holder is you are required to deposit more cash or sell a portion of the stock. Basically, when buying stocks on margin, you are investing your broker's money.

When investing in stock and buying on margin, keep in mind that you can keep you loan as long as you would like. That is as long as you fulfill your obligations. How it works is that after you first sell the stock in a margin account, the profit goes to your broker against the repayment of the loan until you have fully paid up. The deposit that you make into the account, when buying stocks on margin, is called the minimum margin and once this account is opened, you can borrow up to 50% of the purchase price of a stock. This portion of the purchase price that you deposit is known as the initial margin. Just because you can borrow up to 50% doesn't mean that you have to however. You can borrow 10% or 30%, depending on what you need to do when investing in the stock market.

Buying stock through a margin account with a brokerage firm requires that you also understand what a "maintenance call" or a "fed call" is. To understand these terms used in stock investing, you must first understand what a maintenance margin is. A maintenance margin is the minimum account balance that you must maintain before your broker will force you to deposit for funds into the account, or to sell stock to pay down your loan. If your margined securities fall below a certain level, then you, the borrower, receive a "margin call." This margin call, also known as a "maintenance call" or a "fed call" requires that the borrower sell off some assets or deposit more money since the margin account has fallen below this maintenance margin. Buying stocks on margin is risky because if the borrower cannot raise the cash, therefore forcing the broker to sell of some of their holdings, it can possibly result in short-term capital gains tax at very high rates.

Buying stocks on margin is very risky and is an investing strategy that only highly experienced investors should practice. Continue to learn about buying on margin to see if it works for you.

The moving average (MA) is a technical indicator used in technical analysis that shows the average value of a security's price over a set period of time. They come in many forms, but the general use is to track the trends of financial assets by smoothing out the price fluctuations of daily price data, otherwise referred to as "noise." The MA is a mathematical equation that results from calculating an average number of past data points. Once this average is determined, it is then plotted onto a chart that traders then use to identify trends (trend analysis). This average is also used to measure the strength of an asset's momentum and define areas of an asset's potential support and resistance.

The MA is used to identify support and resistance levels. The support level is the level at which most buyers typically enter the stock, and it reverses at the support level, or in other words, the support level is confirmed when it does not fall below its historical support price level. It the stock does fall below the historical support level then the support level is violated. The resistance level is quite the opposite. The resistance level is the stock price in which a stock can trade, but the price in which it cannot surpass for a set amount of time.

There are three types of averages that we will discuss in today's article that are used in stock market technical analysis.

Simple Moving Average (SMA)
This MA is calculated by taking the sum of all past moving prices over a set time frame and dividing the result by the number of prices used in the calculation. In other words, it is the average stock price over a certain period of time. Many investors who study stock technical analysis prefer to use other MA types because they think that the most recent data is more important than past data.

Exponential Moving Average (EMA)
This MA is calculated by applying a percentage of today's closing price to yesterday's MA value. This method puts more emphasis on recent data and less emphasis on past data than the simple MA method. This MA method is more responsive to newer information and is therefore the MA of choice of many investors.

Weighted Moving Average (WMA)
This MA is also designed as the EMA to put more emphasis on recent data and less on past data and it is calculated by multiplying each of the previous day's data by weight. This MA method is evidenced to produce better volatility estimates than the SMA.

Continue to research the MA as well as other technical analysis tools and indicators to see what works best for you. You should also study the use of technical analysis charts as well as technical analysis with candlesticks.

Stock Market Investment Basics for New Investors

As companies grow and would like to continue to expand their business they may opt to pool their money or to obtain loans in order to raise funds. The stock market investment basics tell us that they must make a choice. They can either organize their company as a sole proprietorship, a partnership, and later perhaps a corporation. Once the company chooses to incorporate, the investment risk changes and the owners are no longer personally responsible for nor are they liable for any debts of the corporation if the company fails.

What then happens is the corporation issues a stock certificate, which is basically an official document that represents ownership of the company. Each stock certificate represents a set number of shares and the total number of shares varies for each company. The corporation must then decide how many pieces of ownership they will divide the corporation into. The investment strategy behind these corporations that do this is to sell stock (of their company) to raise money that will provide additional funding for expansion of their business. They sell pieces of ownership in exchange for cash and therefore create shareholders. (Corporations are not allowed to sell shares of stock on the open market without the approval first of the Securities and Exchange Commission (SEC). The stock market investment basics behind this strategy tell us that their remaining share of stock that was not sold to the public will become more valuable as the business grows. A board of directors is established to represent the shareholders, including a president, vice president, and secretary- treasurer.

The two types of stock that are issued include common stock and preferred stock. Common stock is just standard shares issued by a corporation and most stocks that are traded are actually common stock. Preferred stock is issued without voting rights and it is a special class of stock. Preferred stock promises a fixed dividend and if the company is forced to liquidate, the preferred shareholders are the first to receive any leftover proceeds. It is for this reason, and others, that many conservative investors opt to invest in preferred stock. Those who buy stock actually own part of the company meaning that these stock holders can actually vote in annual shareholder meetings and they have a right to a share of future profits.

Stock market investment basics also tell us that a stock's price movement is a result of supply and demand. This is what directs the stock market movement everyday. The supply represents the number of shares that are offered for sale at any one moment, whereas the demand is the number of shares that investors are willing to buy at that one moment. If investors want to buy a particular stock and are willing to pay more, the price will increase, and conversely, if the investors are selling a stock at a particular price and there are not enough buyers, then the stock price will of course go down.

There is obviously a lot more to investing in the stock market, then the stock market investment basics discussed in this article, but you have to start somewhere. If you are interested in earning a living by investing in stocks, continue to learn about the ins and outs of the stock market, and about the different types of trading methods and analysis. 

Technical analysis charts display a series of prices over a set period of time. Stock charts are used along with chart patterns and these patterns are distinct formations that are used to identify current trends and trend reversals that signify to traders when to buy and sell. The theory behind using patterns and chart formations is based on the assumption history repeats itself. Certain patterns are seen over and over again and these patterns signal the probably move that the stock will take. The patterns on technical analysis charts are then used to identify potential trading opportunities. There are four types of stock charts that we will review today that are available for those investors who practice stock technical analysis.
The first and most basic of these four stockcharts is the line chart. The line chart only displays the closing prices over a specific time frame and it is formed by connecting the closing prices over that time frame. While the closing price is considered to be the most valuable piece of information on technical analysis charts, line charts do not provide a visual depiction of the trading range for the high, low and opening prices, which are very valuable pieces of information needed for day traders as well as other types of traders. 

The bar chart is an expansion of the line chart because it adds more pieces of information in addition to the closing price. The high and low for a trading period is displayed along with the closing price and it this information is represented by a vertical line to represent each data point. When short-term stock trading, using technical analysis charts, the close and the open are represented on the vertical line by a horizontal dash with the opening price located on the left side of the bar, and the close located on the right side of the vertical bar. The bar is shaded black when the when the opening price is lower than the closing price, and the bar is shaded red when the opposite occurs. A black bar indicated an increase in value for the stock, with a red bar representing a decrease in the value of the stock.

Candlestick charts are similar to bar charts but they are more visually appealing and easier to read. The only difference is that there is a formation of a wide bar on the vertical line illustrating the difference between the open and the close. There are two color constructs when candlestick charting. White or clear candlesticks both indicate when the price of the stock is up and closes above the opening trade. Red or black candlesticks indicate that the stock has traded down for a period. There is more to using these technical analysis charts and many investors feel that candlestick patterns give the investors more information regarding market sentiment, unlike any other type of chart.

The last chart we will looking at technical analysis charts is the point and figure chart. This stock chart is not used by the average investor but it has been around for a long time. This chart is not concerned with time and volume in the formation of the data points and it reflects price movements. This chart removes the noise, unlike the line and bar chart, and it attempts to neutralize the skewing effect that time has on chart analysis.

The most important part of learning about stock market technical analysis is learning how to read charts.  Every trader must be very clear on what information is shown on the chart and what that information means. Many investors, however, especially day traders, prefer the using candlestick charts above all other types of charts.

Today we will take a refresher course in common stock trading terms used by investors. Please read the stock trading terminology below and see if you learn something new!

Buy and Hold – This is an investment strategy where stocks are bought and then held for a long period of time, regardless of the market's fluctuations. This is based on the assumption that over time stock prices and the market will rise regardless of any short-term fluctuations due to inflation or other factors.

Equity – This term is the ownership interest in a corporation in the form of preferred stocks or common stocks. Stock trading terms such as this are also referred to as "net worth," "book value," or "shareholder's equity." It is also the total assets minus total liabilities and also as the value of securities in a brokerage account minus the margin requirements.

Growth Strategy – This investing strategy is based on investing in companies that are growing faster than other companies in the same industry. The goal is the generate capital gains instead of dividends.

Limit Order – This order is the maximum price that you are willing to pay for a particular stock. This order is typically used to avoid entering a position if the stock gaps up or down (gap analysis) at the opening and the investor wants to avoid entering at an extreme price. This order is often combined with other types of orders. These include stock trading terms such as "buy" or "sell on stop" orders.

Overbought/Oversold Indicator – This indicator is a technical analysis tool that tries to define when stock prices have moved too far and too fast in either direction. To calculate this technical indicator you must know the moving average and the difference between the number of advancing and declining issues over a specific period of time.

Risk Management – This is the process of analyzing exposure to risk and determining how to handle the exposure to risk. There are many other stock trading terms associated with risk management such as risk premium and risk reward ratios.

Short Selling – This strategy is the borrowing of a security or commodity futures contract from a broker and then selling it. It however must later be bought back and returned to the broker. This is one of the stock trading terms that is a technique used by investors who are trying to profit from the falling price of a stock. The profit using this technique is the difference between the price at which the stock was sold and the cost to buy it back. The investor's broker borrows the shares from a lender with the promise to return them later. In doing this strategy the investor sells the borrowed shares at the current market price. If the price of the shares drop then the investor "covers the short position" buy buying back those shares and the broker returns them to the lender.

Volatility – This is the last of the stock trading terms discussed today and it is a very important one. Stock price volatility is the rate in which the price of a security moves up or down. It is calculated by finding the annualize standard deviation of the daily change in price. If the stock price almost never moves then it has low volatility, but if it moves up and down rapidly over short time period, then it has high volatility.

Introduction to Candlestick Stock Charts

Candlestick stock charts are used when trading stocks, forex, commodities, or in options trading. The candlestick chart is a combination of a type of bar chart and a line chart that is used to describe price movements of equity over time. These stock charts are used in technical analysis and are most often used by short term traders. They are considered by most traders to be more visually appealing and easier to use than other types of charts because you can quickly see the relationship between the open and close in addition to the high and low.

Candlestick stock charts are composed of a body and a shadow. The body is either black (or red) or white (or green), and it depicts the opening and closing of trades. The body is white or green if the stock closed higher than the open, and it is black or red if the stock closed lower than the open. The opening price is at the bottom of white bodies with the closing at the top, and vice versa for the black bodies. When analyzing candlestick chart formations, the shadows look like long thin lines that are above and below the body and they represent the high and low range. They are also referred to as wicks and tails. The top of the upper shadow represents the high and the bottom of the lower shadow represents the low. Keep in mind that you don't necessarily have to have either a body or a wick when reading candlestick stock charts! You will learn more about this when you start to study the actual candlestick chart patterns themselves. Additionally when studying candlestick charts, you will learn that you must have data that shows the open, high, and the low and close values for each time period that you want displayed.

Once you begin to learn about the different candlestick patterns utilized when reading candlestick stock charts, you will learn more about the body and the shadows. Typically the longer the body is, the more intense the buying and selling pressure. On the other hand, when the candlestick body is shorter, this indicates very little price movement and signifies consolidation. Additionally, when a candlestick has a short shadow, this means that most of the trading action was confined to the open and close whereas a long shadow means that trading expanded well past the open and the close. Basically, when candlestick trading, the upper shadows represent the high for a session and conversely, the lower shadows represent the low for a session.

Continue your candlestick analysis education and learn how to read candlestick charts in order to identify patterns such as the hammer candlestick, the doji candlestick, the dragonfly and the gravestone candlestick.  They are fairly easy to learn and will lead you to better investing in the stock market.

What are Stop Orders?

Stop orders are orders to buy stock or sell stock once the price of the stock reaches a specific price. This specific price is known as the "stop price" and when that specific stock price is reached, the order then turns into a market order. Stop orders are used more frequently for stock that trade on an exchange more than over the counter stocks. In some situation, brokers do not allow these orders to be placed for over the counter stocks.

Market orders, as mentioned above, are orders to buy or sell a stock at the current market price. There are advantages and disadvantages to markets orders. The advantage of a market order is that there is almost always a guarantee that the order will be executed. They also tend to cost less than limit orders. Your stock broker will automatically enter your requested stop orders as market orders, unless you otherwise specify. The disadvantage to market orders is due to the fast moving markets. What happens is that the price that you pay when you execute your order is not necessarily the price that you obtain from a real-time quote service. It fluctuates due to the fast moving markets. It is recommended that you speak to an investment advisor or broker to have a full understanding of these orders work.

There are two types of stop orders. The sell stop order is always placed below the current market price and its assists investors with avoiding further losses when playing the stock market. It also helps to protect a profit that exists if the price of the stock continues to drop.  A buy stop order is placed above the current market price and it is used when buying stock to limit a loss or protect a profit on short sales. What is great about these orders is that you don't have to constantly monitor how a stock is doing on a daily basis if you don't want to. It is however smart to keep an eye on it to prevent from losing out due to a short-term fluctuation in the stock's price.

Limit orders are also used when trading stocks and are placed in order to avoid buying or selling stock at a price higher or lower than you wanted. It is basically an order to buy or sell a security at a specific price. You can't control the exact price at which your order will be filled when using a limit order, but a buy limit order can only be executed at the limit price or lower. On the contrary, the sell limit order can only be executed at the limit price or higher.

It is important to learn about the stop orders and other orders necessary when trading in the stock market. Continue to educate yourself and learn about how these orders can assist you when investing in stocks.

Paper Trading Stocks

Paper trading stocks, or other types of investment vehicles, provides a great way to learn how to trade, without actually trading with real money. There are now companies online that provide simulation tools for online paper trading that allow investors to practice trading using various strategies and more importantly it allows you to learn from your mistakes without losing real money.

There are many benefits to online paper trading. First of all, it allows investors to develop a trading discipline. This is a very important part of the process, because without coming up with a trading plan and adhering to that plan, the investor will lose money and quick. Discipline in your trades is the key to successful trading. Secondly, it allows the investor to test trading strategies. This is crucial to the learning process and is another great benefit. There are numerous strategies available to the investor and it is important to test those strategies to be sure that they are a good fit. Additionally, the trader is able to build confidence in the stock market, they may not have otherwise had. After practicing for a period of time, the trader is able to reach a desired comfort level before actually investing money. This level of comfort is acquired as the stock trader establishes a track record that he or she can be proud of.  Lastly, the investor is able to evaluate new markets as well as make trading career decisions. It cannot be stressed enough the importance of paper trading first before playing the stock market, or any other market of choice.

While there are many benefits there are also some issues that investors should be aware of. When investors are truly trading in the stock market, there are a range of emotions that can cause investors to do things they wouldn't normally do. This is perhaps the only area that paper trading does not adequately prepare investors for. For this reason, investors must be sure that they do not make trades or do anything that they wouldn't normally do in real life trading. This concept goes back to the issue of obtaining discipline in your trades, as previously discussed. Investors must follow strict rules that they have set for themselves to follow their stock trading plan. Through obtaining discipline in your trades, you lessen or learn how to better control the range of emotions that are inevitable when trading stock online.

Investors should also learn how to sell short when the stock market is going down. Selling short may be difficult, but now that you have the ability to practice without losing real money, why not try it? A lot of traders have a hard time with this concept, but if you can learn how to take advantage of the markets, then you can also make money when the stock market is down. If you are going to be trading stock full-time, wouldn't if behoove you to learn how to trade no matter the market condition?

There are many different types of commodities traded on the commodities exchange. There are also many different major exchanges available to investors when trading commodities. Each exchange is specific to certain commodities, and other exchanges trade in an entire different set. The commodities are grouped in a way that makes it easier to compare commodity price, research each commodity, and to make trading more convenient. In today's article we will discuss the different exchanges available for commodity investing a well as the different groups in which commodities are categorized.

The four major commodity exchanges include:

1) New York Mercantile Exchange (NYMEX) – This is exchange is one of the oldest exchanges in the United States and it specialized in metal products and petroleum. It was originally in Chicago but eventually moved to New York and it includes a large variety of commodities available to commodities traders.

2) New York Board of Trade (NYBOT) – This was the first commodities exchange to be established in the United States, and it was established in New York City. In addition to trading commodities such as cotton, coffee, cocoa and sugar, it also trades currency as well. This exchange also trades many agricultural items as well.

3) Chicago Mercantile Exchange (CME) – This exchange is unique in that the weather derivative is traded here. Weather is speculated on at different times of the year, making this exchange unique in nature. In addition, it has been in business for over 100 years with hogs, milk, lumber, fertilizer, feeder cattle, and pork bellies as the main commodities traded on this commodities exchange. This exchange located in Chicago, now trades single stock futures, includes foreign exchange trading, and also serves as a marketplace for the stock index, and interest rates.

4) Chicago Board of Trade (CBOT) – This exchange has recently added electronic trading features but initially only traded agricultural commodities. It was established in the 1840's and it now offers options contracts as well as futures on products such as gold, energy, silver, and U.S. treasury bonds.

There are other exchanges around the world including one in Japan and London in addition to the commodities exchange listed above. 

Commodities are also categorized by five different groups including energy, grains, softs, meats and financials. Energy commodities include natural gas, coal, crude oil, heating oil, petroleum and its byproducts. There are additional energy commodities that are included that are not listed here as well. Grains include products such as wheat, rice, soybeans, oats, and corn, while softs include products such as cotton, coffee, sugar and cocoa. Meat products include lean hogs, live cattle, and pork bellies in addition to others. Lastly, financials commodities are available for those investors who would rather invest in commodity futures or options instead of investing in the products themselves. Due to this, financial products are also listed on the same exchanges.  

The commodities exchange is a great place for investors to make money. If you are interested in commodity trading, continue to do research to find out if this is an investment option that works for you.

Commodities traders can include both hedgers and speculators. Also known as futures traders (futures trading), hedgers have an interest in the underlying commodity and seek to hedge out the risk of price changes. Speculators, on the other hand, seek to make a profit by predicting market moves and they buy a commodity on paper in which they have no practical use.

Before getting into further detail regarding the types of commodities traders, let us first take a look at commodities markets. Commodity markets are markets in which raw or primary products are exchanged. Commodities are traded on regulated commodities exchanges. On these exchanges is where commodities are bought and sold in standardized contracts. An example of a standardized contract is a futures contract. The point of a futures contract is to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. These contracts give the holder the obligation to buy or sell (exercise the contract) and this contract must be fulfilled on the settlement date. Examples of the types of commodities traded include, energy, meat, softs (including coffee, cotton, sugar, etc.) and financials (such as stocks, bonds). They are numerous types of commodities available for trading.

Commodities traders who practice hedging typically include producers and consumers of a commodity. A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. This strategy is designed to minimize exposure to an unwanted risk, while still allowing profit from an investment activity. Typically large companies operate in these futures markets and use futures contracts to lock in their selling prices for the product in advance of delivery of the product. Speculation is the opposite of hedging and its purpose is to make an investment that increases the overall risk in a portfolio. (Hedging decreases risk). This is the other side of the transaction in which the trader speculates on whether the commodity price will go up or down before the contract is due for delivery. A lot of long-term investors are classified as speculators and they buy and hold for years at a time. There are also some speculators that buy and hold for shorter time frames through the use of leverage. The concept behind leveraging is to multiply the amount of motion that you get from the energy you put into a transaction. Leveraging is a tool that requires immense focus and 8- 10 hours of dedication each day.

Commodities traders have a multitude of options to choose from when trading commodities, as well as multiple strategies that can also be used to make money in this market. For investors interested in commodities trading, continue to do your research to find those strategies that work best for you.

Stock trading online has become more and more popular with the advent and growth of the internet. Many investors that otherwise wouldn’t think of investing in stocks, are now stock trading online for a living. If you are new to the stock market and are interested in learning about trading stock online, read this article to find out the ins and outs of trading the stock market to see if it is a good fit for you.

Stock trading online provides tools supplied by various brokerage firms that can help you stay on top of the market and abreast of new trends. An online broker can provide you will tools such as streaming stock charts, live stock ticker, top ten lists, and personal quote lists. Stock screening is also a tool that can show you earnings, book value, and other helpful information.

Additionally, there are free online classes available to new investors that teach you about the different trading techniques, types of trading, technical indicators used in technical analysis, as well as how to read charts, protect your stocks, and how to pick stocks. Many classes are taught by industry professionals that knows the ins and outs of the market. They host workshops online as well as in person, and you can join their forums in order to network with other investors and to get more personal instruction from the industry leader you choose to follow and learn from.

When stock trading online, you can also take advantage of free trial periods provided by the various online brokerage firms. During this trial period you can practice using their site to trades stocks to determine usability, accuracy, and ease of use. You will also want to test their customer support level of services to be sure that if you have a problem, you will receive a timely response from a customer services representative. Not only do you want to be sure that you receive a timely response, but you also want to be sure that the information that you receive from them is useful and accurate. Additionally, you will want do some comparison shopping, and check out monthly subscription fees and other rates required by each site.

When you are ready to begin stock trading online, be sure that you only use money that you have! Decide how much you will trade each day, and do not go over that amount. Leave your retirement and your kid’s college savings alone. Use only the money that you have and eventually, if you stay focused, trade smart, and are committed you will see your money grow over time as you make money investing in stock

Trade Stocks – Types of Stocks to Trade

In order to trade stocks it is important to understand the different types of stock available to the investors to trade. In today's article we will discuss two types of stocks as well as the different stock sectors used to classify stocks.

There are two types of stock including preferred stock and common stock for investors who trade stocks. The majority of investors own common stock. Preferred stock represents a degree of ownership in a company and the company has the option to purchase shares from shareholders at any time for any reason. Preferred stock has fewer rights than common stocks except in regards to dividends. Companies that issue preferred stock pay consistently with dividends and preferred stock has first rights to dividends over common stock. Also, in the event of liquidation, preferred stock shareholders are paid before common stock shareholders.

Investors who trade stocks in common stocks are of the majority of stocks traders. Common shares represent ownership in a company and claim on a portion of the profits through claiming stock dividends. Investors invested in this type of stock get one vote per share to elect board members who will ultimately oversee any major decisions made by management of the company. This type of stock is mostly held by the public and is the when people refer to stocks they are typically referring to common stocks. They provide higher returns than with higher risk. For example, in the event of liquidation of the company, shareholders will not receive money until the creditors, preferred shareholders and the bond holders are paid.

Investors who trade stocks classify stocks by the type of business. Companies are grouped together by industry including eleven different sectors. These eleven different sectors fit into one of two groups including cyclical and defensive stocks. Cyclical stocks include nine sectors are include everything else other than utility companies and consumer staples, which are defensive stocks.

The list of cyclical stocks for investing money include the following:

1) Basic materials
2) Communications
3) Capital Goods
4) Energy
5) Financial
6) Transportation
7) Consumer Cyclical
8) Health Care
9) Technology

The cyclical sectors are considered cyclical because they tend to move up or down in relation to business cycles or other influences.

Defensive stocks include consumer staples and utilities as mentioned above. These stocks are used in defensive investing because they can potentially provide protection in a falling market. They balance out portfolios as a result because people will always eat food and need energy. They will however fail to climb with a rising market, so it is important to ensure portfolio diversification by investing in other types of stocks and stock sectors when you trade stocks.

The above provides basic definitions for common stocks, preferred stocks and the different stock sectors available to the investor. Continue to read about the different types of stock investing so that you ensure that you have strong portfolio.

Online Brokers – Factors to Consider

When looking at your options for online brokers there are various factors to consider. It is very important that you do your research as this is one of the most important decisions you will make when you begin to invest in stocks online. Your online stock broker will be responsible for tasks such as storing your personal information, executing your trades and maintaining your account balance. In today's article we will look at factors that every investor should consider when looking to select a broker online.

Full Service or Discount Brokers
Your experience level will determine the type of broker that you should select. The more experienced investors will most likely opt to use an online discount broker. Discount brokers offer services at discounted prices because they don't offer investment advice like full-service brokers. Discount brokers simply place your trades per your instructions whereas full-services brokers will not only place your trades, but will advise investors when they have questions. Beginner investors often opt to utilize the services of full-services online brokers.

Research and Referrals
It goes without saying that you must research as much as possible different brokerage firms that you are considering. Many investors will speak with successful traders who they network with to find out what brokerage firm they use, how they feel about the firm, and the type of services offered. This can help narrow down the search tremendously.

Fees
It is very important to understand the different types of fees associated with each brokerage firm. Not only do you need to research the fees but you must also find out what features each firm offers. You don't want to go with the most expensive investment broker, but you also don't want to go with the cheapest either. The key is to find a reputable firm that offers the services that you desire at reasonable costs.

Deposit
In addition to finding out the fees associated with the online brokers that you are researching, you must also find out the minimum deposit amount that each firm requires to set up a trading account. You will find that some firms don't requires a minimum balance at all for online investing, while others require a minimum balance of a couple thousand dollars . Again, the key is to find a reputable firm that is not at opposite extremes.

Customer Service
This is a major factor when choosing a broker. Many times potential customers will call the customer service number to find out how long it takes for a representative to answer the phone. Not only do they measure how long it takes to answer the phone, but they call prepared with questions to find out how knowledgeable and helpful the representatives are, not to mention how friendly they are as well.

Site Reliability
This factor is crucial to your success when making an online investment. Before signing up with a brokerage firm, ask for a trial period. During this trial period you can assess the performance and reliability of the site. Does it have a lot of down time? Is it a system that is user friendly and intuitive? Finding a trading system that you can use it crucial to your success. 

Selecting a broker online takes a lot of time and effort. They key is to putting in that time upfront, instead of finding out later that you made the wrong decision. There are numerous online brokers available and with patience and due diligence you will find one that works for you.