Tips for the On-line Investor

Receive full disclosure, prior to opening your on-line account, about 1) alternatives for buying and selling securities and 2) how to obtain account information if you cannot access the firm's website.

Understand that most likely you are not linked directly to the market, and that a click of your mouse does not instantly execute the trade.

Substantiate any on-line firm's advertised claims concerning the ease and speed of on-line trading.

Receive information about significant website outages, delays and other interruptions to securities trading and access to accounts.

Receive information, before trading, as to entering and canceling orders (market, limit and stop loss), as well as the details and risks of margin accounts (borrowing money to buy stocks).

Determine whether you are receiving real time or delayed stock quotes, and determine when your account information was last updated.

Review the on-line firm's privacy and website security policies, including whether your name may be used for mailing lists or other promotional activities by the on-line firm or some third party.

Receive clear information about sales commissions, fees and conditions that apply to any advertised discount on commissions.

Know how to contact a customer service representative with your concerns and to request prompt attention and fair consideration.

Contact your state or provincial securities agency to verify the registration and licensing status of the on-line firm and its disciplinary history. If appropriate, file a complaint.

Do Your Homework. Just because you have state of the art research, analysis and trade execution services, making it easy to invest, remember that investing always is risky. Each investment decision should be based on care, attention and sound reasons.

Consider the Source of Any Information You Receive On-line. The SIA brochure describes two types of information that investors see on bulletin boards and chat rooms: 1) information from fellow investors and 2) information from stock manipulators. Regarding information from fellow investors, consider this to be only "cocktail party" chatter, and give it its appropriate (minimal) weight. Regarding information from stock manipulators, the brochure cautions that these individuals intentionally attempt to manipulate the price of stock (upwards of downwards) for their own benefit. Before the Internet, these "boiler room" scam artists misused the telephone. Always ensure that information comes from a reliable source.

Anticipate Occasional Delays and Breakdowns with the Internet. The brochure states that, "When market activity reaches a fever pitch as it has recently, you may experience the same difficulty accessing your account on-line as you would in reaching your broker by phone." As a result, you should discuss, in advance, what alternatives are available during those times. Be prepared to use a live broker or a touch tone telephone system to place orders and obtain quotes.

Have a Plan For Dealing With Volatile Markets. The brochure cautions that stock prices sometimes move so fast that order executions lag behind the fluctuations in price. That means that the prices that you see on your computer screen may not reflect the prices at which shares are currently changing hands. To attempt to protect themselves, on-line investors must know the difference between different types of orders. They are:

• Market Order: Filled immediately at the best available price (and not necessarily the price that you see on your computer screen);
  
  
• Buy Limit Order: Establishes a limit as to how much you are willing to pay for a stock;
  
  
• Sell Limit Order: Establishes a floor on the price you are willing to accept when you sell. However, this can be dangerous with rapidly falling stocks, because if a stock price is falling rapidly, it may bypass your sell level (without execution). There is no way of knowing when you may get another chance to sell at that price. For that reason, some investors favor the sell stop (loss) order;
  
  
• Sell Stop (Loss) Order: Here, you place the sell order below where the stock is trading. If the price of the stock falls to that level, your sell order is triggered, and your stock will be sold. However, there is no guarantee that you will receive the price at which you set your sell stop (loss) order. You will receive the best available price.

Avoid Risky Techniques. The brochure warns that trading on short term price movements can be extremely risky and requires a serious, ongoing time commitment. Additionally, when "day trading", investors must monitor the markets carefully, often to the exclusion of other activities.

Realize That On-line Investing Requires You to Be Self-Directed. There is no broker between you and the markets. Be careful.