Tag: online brokers

  • Self-directed Investing – Advantages and Disadvantages

    Self-directed Investing – Advantages and Disadvantages

    (Updated Oct. 21)

    Self-directed Investing - Advantages and Disadvantages
    You’ll pay lower fees if you choose some online broker but you have to do everything yourself

    Self-directed investing also known as do-it-yourself investing is when you as an investor build and manage your own investment portfolios. That means you manage your investment strategy on your own. You are the one who decides which investments you want to buy or sell, and when. Self-directed investor ordinarily uses some online trading platform to make the trade. These investors prefer to forego the advice of an investment adviser since they are do-it-yourself types of investors. If you are a DIY type, here some things you have to take into consideration. Also, you’ll need to follow some principles. 

    Famous investor, Warren Buffet said: “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” 

    This is particularly true if you know that self-directed investing is very simple. To be honest it isn’t the easiest one but also, it isn’t a terrifying type of investing. 

    Anyone who has done simple but serious research with due diligence can count to outperform the stock market. By self-directed investing, you could do that over a long period if you know how to create an investment portfolio capable of beating the market.

    Advantages of self-directed investing

    First of all, you’ll pay lower fees if you choose some online broker. That will allow you to trade with lower commissions and fees. This comes from the fact that in self-directed investing you don’t need any advice or advisor since you choose to be a DIY type of investor. Further, you can make your own research, and, based on it, you’ll make an investment decision. You’ll have control over your investment. As we said above, self-directed investors use online trading platforms, from websites or apps. That is a very convenient strategy because the provider will often offer you researching tools, stock quotes, interactive charts, and other important trading data. For example, you’ll have an opportunity to look at how your investment is performing in real-time. 

    Disadvantages of self-directed investing

    But there are some disadvantages also. The first one is that you have to do everything yourself. In self-directed investing the whole process is done by yourself. Research, picking the stock you want to buy or sell, you have to monitor your portfolio in person, to decide when to buy or sell. To aid this process, self-directed investors diversify investments. It is a good strategy that allows them to follow investments especially when the markets are volatile. 

    The additional drawback of self-directed investing is the possibility of overtrading. Online trading offers you to trade easy and quick, but it is a double-edged sword. If you’re not disciplined enough you may take too much risk and it will cost you additional fees. Additional fees could and will reduce your returns. Also, you can make some unexpected mistakes due to the fact that trading platforms operate so quickly. You’ll need to understand the platform you’re trading with, in detail. This is necessary to avoid buying and selling stocks at prices you didn’t want, particularly when the prices are changing fast and markets are extremely volatile.

    How to become a successful DIY investor?

    Set the orders

    There are some tricks of the trade very helpful in self-directed investing. Keep in mind you can set more than one type of order. When you want to enter your stock order it is a smart decision to set the limit orders. Meaning, you’ll have to establish the minimum stock price at which you want to sell and the maximum stock price at which you’re willing to pay when buying a stock. Also, set a market order. That will provide you to get the best price no matter if you want to sell or buy the stock, but the best price possible at the moment the market receives your order. For example, if you trade while the market is closed, you’ll receive the market price on the first following trading day. However, you have to be careful with market orders. That price could be lower, at least it can vary, from the closing price on the prior trading day. Nevertheless, market orders are the fastest way to execute your order while limit orders will provide you more control over your stock’s price.

    Cyber awareness

    Self-directed investing is commonly done through trading platforms as we mentioned. Hence, look at these trades as any other online transaction. You must have cyber awareness since safety is the main thing to think about in investing. Never place your trade by using some public wi-fi, keep your sensitive data, such as banking data, secure. Here are some tips on how to have safe clicking.

    Having a strong password is MUST, never use the same one for different sites. You know what an address bar is, right? Keep attention if it hasn’t a lock symbol. Well, it’s better to avoid such websites. Find a trading platform provider that will never ask to disclose your personal information or credentials in an email. The trusty provider will allow you to send inquiries through a secure message from your account’s homepage for self-directed investing.

    Choose your stocks without emotions

    If you want to put your money into companies and investments you “love” keep in mind it is so easy getting caught up in the hype of the cool investments that could generate great returns. Yes, we know that some of you did exactly that. It’s so easy to make a mistake if you put your money into companies that are currently popular and favored.  Avoid investing in such “frenzy” companies. Hot stocks are so seductive but they could last as long as a shooting star, for a few seconds before disappearing! Think twice if it is a good choice for you.

    Recognize your goals in investing

    Goals are an extremely important part of investing. You have to analyze them and come back to them from time to time and see if you stick to them. We all are going through different stages during our lives. Some major life changes might influence our investing goals. Since we are talking about self-directed investing you’re a lonely rider. There is no advisor to tell you what to do. So, it’s very important to reconsider investing goals from time to time. Your investment portfolio has to be aligned with your goals no matter what kind of investment horizon you have, short- term or long-term. Also, examine your risk tolerance, again and again. As times go by it might be changed so adjust your investment portfolio according to new risk tolerance. Maybe you should be less in stock, more in bonds, or vice versa. That’s up to you. Maybe you would like one of the lazy portfolios now, who knows?

    What investment vehicle is best for self-directed investing?

    First of all, there is no such thing as “the best investment vehicle” for self-directed investing. That depends on you as an investor and your goals. You can choose stocks, bonds, ETFs, mutual funds, whatever you like, and trade in the markets.

    But, selecting the right investment must be made carefully. Ask yourself what is your goal with this particular investment. Further, how it will influence your other investments in the portfolio. Be careful, you are managing your investments on your own. But relax, in online investing, you have many tools available. At your disposal are many advanced tools that may help you to select the best investment for your goals. 

    Does it matter in which sector you invest?

    This is a more serious question and you’ll need more work and researching. Some sectors may be more sensitive to specific economic circumstances or have poor performances, but others can be fantastic over certain periods. Guess! In online investing, self-directed investing, you have tools that will help you to decide which sector to choose. It is the same as picking the stock. That’s the beauty of online investing. Actually, you’re not alone but all decisions you make are done on your own.

    Use margin account smart  

    Every single investor or trader will request a margin account at some point to enhance chances to increase returns. If your investment is leveraged you’re able to buy more shares. Leverage is the process of borrowing money from a broker, against the investments in your account. When the market is going in your direction you’ll generate larger returns. Remember, you’ll have to pay back the money borrowed, plus interest but the rest is your profit if any. Yes, that’s the problem. If your investment pays not, you still have the obligation to pay back the borrowed money with interest. Hence, using leverage or margin accounts could increase returns, but also could enlarge the losses.

    Bottom line

    The success of self-directed investing heavily depends on your strategy. Your strategy is your best friend in investing. A friend that will give you a hand and lead you to reach your investing goals. You can choose among many strategies or create your own if you find that one strategy may not work for you. Investing is individual, so you have to trust your strategy. It must help you reach your investing goals. Which other purposes does it have? 

    You’ll decide if self-directed investing is suitable for you. No one else. And you’ll do it based on your risk tolerance and investing goals. We are here to point some other essential principles that can help keep you on track. Nothing else.

  • How to Choose an Online Broker?

    How to Choose an Online Broker?

    How to Choose an Online Broker In 2020?
    Online brokers will not add more pain to your trade. Contrary, they will help you to enter an order and place a trade to buy stocks.

    By Guy Avtalyon

    Technology has entered a new epoch in the investing world. We are trading stocks from our room, in real-time. Most of the online brokers take zero commissions. But how to choose an online broker in 2020? How to find the best one? Well, we can give you some hints and suggestions but most of that job is up to you. Choosing an online broker depends on various factors but most important is that your choice fits your goals.

    Different brokers will offer you basically the same services, tools, features, and almost the same fees. Well, that’s the competition.

    The answer to the question “How to choose an online broker” depends on what type of trading you want.

    Some brokerages have a more comprehensive offer in investment strategies. Others will offer only one niche, for example, options trading. So, there is almost no need to ask how to choose an online broker, right? Of course, this is a completely wrong answer. Among numerous excellent brokers, you can find scammers too, so keep your eyes open.

    Our aim at Traders-Paradise is to provide true and comprehensive data for online brokers we tracked and examined. So let’s see how to choose an online broker in 2020, what criteria to use, how to determine if some is better than the others. Also, you can visit our Wall of Fame or Wall of Shame to check your picks.

    How to choose an online broker?

    For a long time, investors need advice and human advisors. They are still valuable, but who has sufficient time to have long chats with advisors? Modern investors use online brokers because of their simplicity. They have all investing tools that may assure your trade, can teach you how to identify your options, how to enhance your trading skills.   

    Everyone would like to grow wealth and to do so with minimum risks. By using some of the online trading services you are on a good path. No matter if you have an individual trading account or a trading account related to your retirement plans.

    Using the tools accessible through an online broker offers you can control your investments. Don’t you think it is a clever way? 

    Let’s say as an example, the market turns quickly, and you have to act quickly. But, you have to call your advisor and make an appointment. It can take days, weeks until that happens because you are not the only client. But you are in a big hurry, your investment may be ruined, you can lose all your money. You need that help immediately! With human advisors, you will never or rarely have that kind of assistance.

    They are expensive too. They will charge you fees, a  percentage of your portfolio. As a trader, you have bad and good years. How much these fees can drain your portfolio over the bad years when you have smaller gains? A lot. The online broker will charge you a fee for sure, don’t worry. They will charge you per trade which is beneficial for traders that don’t trade frequently.

    Define your goals before choosing an online broker

    This is very important. You MUST know your priorities before picking an online broker. If you are an investor with a long-term horizon and have a portfolio with only a few stocks you are not interested in saving a few dollars per trade. You will seek a good research tool to find a stock with the best potential for your long-term goals. In other words, you would prefer an online broker that offers large data.

    But, if you trade very often and read financial news through different media and sources, your priority can be the cost per trade.

    What to look at when choosing an online broker?

    As we mentioned, depending on your knowledge and how frequently you trade, you might seek for something different than others when choosing a broker. Basically, it is personal. But several things are common for all of us. You must be sure that your broker has valuable tools and accessible news, updated in real-time that you can freely research. The number of securities and funds available is also important because you wouldn’t like restriction in any sense. For new investors that enter the stock market for the first time, it is very important their broker will not require a great initial investment. So, you have to seek for minimum investments. Fees are a big issue too. You can easily find a broker with minimum fees. But be careful, sometimes it is better to pay more for better service. In the long term, it can benefit you. 

    The Internet has made it more accessible and less costly to buy anything online, so stockbrokers must make it less costly for investors to purchase stocks or funds or bonds. But one feature is what makes investing so great today. It is automatic investing. Find a broker that offers this. It’s a wonderful thing thanks to the internet that you can complete your trade from your home or office or from any place on the globe since there are plenty of brokers that will offer you a chance to trade from your self phone. 

    And read, not only books (that is MUST), read reviews. Other people’s experiences sometimes are a cornerstone of our decisions. Watch out! If you notice a red flag stay away.

    Investment minimums

    Some brokers require a minimum investment amount. Investment minimums can be an issue if you don’t have enough money. Also, that can limit you if you plan to size your investments gradually rather than invest huge capital in the beginning. Read the fine print on your broker’s website because maybe it isn’t visible at first glance that charges fees if your balance falls below a specified amount. 

    Also, you must know everything about maintenance or inactivity fees.

    It can be frustrating if you didn’t know that you have to pay in such cases. You would like to have an online broker that gives you access to the premium features. Remember, while one broker keeps them locked the other will give you full access without additional fees for the same premium features. Of course, you have to be reasonable and not demand some expensive features like some special charting or something similar. It is time to say something about margin fees. You must understand that trading on margin is costly and carries potential risks. Always check how high the margin fees are. Don’t be surprised. 

    How to choose an online broker can be a tricky part of your investing.

    If you want to use some brokerage’s service for trading you have to know that price isn’t everything. By the way, everyone likes to find a broker with zero fees for trades. Of course, it is impossible if you want a respectable and trustworthy broker. You’ll have to pay something if you want to earn, right? Well, most online brokers will not charge you commissions, so you have to take care of the quality of the features they are offering. The available research, tools that will help you to learn to trade are valuable assets for beginners but for elite traders too. Just keep that in mind when deciding how to choose an online broker. They will help you to buy stocks.