The growth in online brokerages offers cheaper trading opportunities for investors but potential customers should be aware that they will get what they pay for.
Online brokerages charge low commissions because they are low-service operations. The low charges are a good reason to use such services but they do not advertise their limitations. The burden is on the customer to protect himself - as is the case with traditional brokerages as well. Here are a few suggestions to avoid disaster.
When you're buying shares, the brokerage will offer you two types of order methods: a limit order and a market order. A limit order means, if you're buying, that you will pay no more than a specified price; if you're selling, it means you'll accept no less than a specified price. A market order means you'll accept the going price.
Avoid market orders whenever you can, even at the risk of not getting your shares. This is a critical issue for online investors.
Use the limit-order option to keep your price within range, to make sure you don't pay more than you want.
Use a limit order when selling, too. You may be taking a profit because your share price has hit $100 (€96). Keep plenty of cash in your account to cover trades in full. If you can't do that, pay up as quickly as possible.
