Business

Online trading...how can you do it?

By Shamille Scott Business reporter scotts@jamaicaobserver.com

Sunday, January 20, 2013    

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Trading stocks online can give you a chance to access the US market.

With a minimum of US$1,000 an investor can open a cash account.

What's more, unlike with companies listed on the Jamaica Stock Exchange (JSE), an individual can trade US stocks on their own.

To do so, you have to set up an account through a local stock brokerage, according to Franklin Toyloy, assistant manager-portfolio management at Alliance Investment, but the broker doesn't manage the account.

The local firm gives clients access to exchanges such as the New York Stock Exchange, NASDAQ and the American Stock Exchange.

Once the client decides to trade online, it can be done from a web-based page, which is a basic version allowing the trader to buy and sell shares. The investor can also trade from a downloadable software that offers information on the losses and gains for the day.

An investor can be an active, or day trader or medium-long term and set up either a cash account or a margin account to trade.

A cash account allows you to purchase stocks equal in value to the amount in the account, but a margin account allows you to buy shares valued at a multiple of your balance.

The minimum amount needed to set up a margin account is US$2,000.

Here's how it works: the active trader, with the margin account, is given a four-to-one margin, which allows them to buy up to four times the amount of stocks that can be bought with a cash account.

This means, an individual with a cash account of US$2,000, can only buy US$2,000 worth of stocks, while with if you have the same amount in a margin account you get buy up to US$8,000 worth of stocks.

On-line trading purchases are no more risky than purchasing through a broker.

It revolves around price changes of the stock, said Jermaine Deans, Senior Manager, Asset Management Solutions at Sagicor Life Jamaica.

Alliance investments said the risk is like any other security, the price can go up and down.

But before you get to it, do research. Meanwhile there are ways to practice before putting up any of your hard earned money.

"We are aware that online trading isn't a well known product in Jamaica so a stock wizard challenge and a demo account are given to familarise persons," said Alliance Investment.

Needless to say, online trading, like with most things are not for free.

Trading can cost US$10.95 per trade up to 2,000 shares in a single transaction.

Millions of shares are traded online on a daily basis.

Many players trade in big volumes, so one player won't affect the price.

"There's really no single player that can move the market too much in any direction," said Toyloy.

Online trading can allow investors to diversify their portfolio.

It's is real time and fast paced, so the investors can see quicker results, said Alliance Investment.

So what should guide the investor who trades online?

"We don't tell clients which stocks to trade, but will offer some guidance on how to trade," the company said.

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