Online Stock Trading Broker Basics

Before you can start trading stock online you need to find a broker. The principal considerations as a trader should be to find an online platform that is both reliable and competitively priced. Depending on how often you trade, the costs can really add up so choose carefully. When trading stock, remember that you have to also take into account the difference between the bid and the offer before you are in profit.

What Is Bid and What Is Offer?

Bid and offer is basically the sell ( bid ) and buy ( offer ) price. For example if a stock was 38p to sell and 40p to buy the difference between those two prices is known as the 'spread'. To make a market in the stock, marketmakers set the prices and are often in competition with each other to provide liquidity and get the business. Likewise, prices depend on how much stock each marketmaker has on their books. If it's in short supply it's will often be more expensive to buy. When you action a trade through an online broker, the system will usually get a small improvement on the price quoted on stock monitoring systems. That price is known as the touch or yellow strip price. For example you may buy 1000 shares in the company above and get them for 39.7p each instead of 40p.

When trading stock there are occasions where online brokers will not allow you to buy or sell stock above normal market size ( this varies with great regularity ). In these instances the broker has to call the marketmaker to get a price and then put the trade through manually on the system after confirming it with yourself.

I am going to finish this post with a statement that may surprise or even shock some of you. When you are trading stock online as a beginner, you should not lose more than 10% of their overall capital in the first trading year. I will talk more about this in the next post on trading stock to win ( and survive ).