Introduction
Recent trends in online trading operations have largely altered the basic principles underlying stock trade. The trends guide the approach adopted in the management of online trade operations. Additionally, the online platform allows people to easily access information as well as facts that define the online trends adopted by various persons as well as organizations. The online platform also allows individuals to easily interact with the companies they intend to trade with. This occurs either via brokers or directly. As a result, people base their trading decisions on personal judgments as well as expertise (Charles, 2010). The online platform has created a paradigm shift in financial markets with over-reliance on brokers gradually declining.
Online stock trading
Online trading enables an individual to purchase and put up stocks and shares for sale from the comfort of their homes or workplaces. This is done without the need for brokers (Travolta, 2008). To enjoy online trading, one needs to own a PC and a good internet connection. Additionally, an online trader may be required to facilitate trading. The brokers facilitate individuals to buy and sell stocks whenever they so desire. The commission rates are also largely reduced by the ability to engage in online trading. The number of companies offering online trade is large. They provide the platforms that allow individuals to open accounts and use them for purchasing and selling of stock. These accounts form the center of stock trading is done, both with regard to purchases and sales of the stock. For individuals who require the services of professionals, an additional fee is charged.
While some charge a commission as low as $5, some charge up to hundreds of dollars. Differences arise when one chooses either the discounted or traditional brokerages. Some companies like Charles Schwab and Merrill Lynch, provide both options. The table below compares the rates and charges offered by three different online companies.
Comparison of three online trading companies.
Online share trading services
There are three main aspects necessary to begin online stock trading. These include the trading account, the PC, and an internet connection (Jenny, 2009). One needs to open up an online trading account to enjoy online trading of stock. The facilitators of such accounts act as brokerage agents. They charge brokerage fees and hence brokerage rates and taxes applicable should be evaluated before opening online trade accounts. Different trading rates are available for different trading methods. It is important to get a demo of a company’s online trading software to ensure its reliability before opening an account. It is also important to look out for any additional charges.
Dividend Re-Investment Plans and direct investment plans
A number of corporations permit individuals to buy or sell stock options directly without the need of making use of or paying out commission rates to an agent. However, an individual may well have to pay out a charge to utilize the provider’s platform (Travolta, 2008). A number of organizations require that an individual own some stock in the corporation or are currently employed by the corporation. This is a prior requirement to take part in the company’s direct stock options. An individual can buy stock by trading a dollar sum instead of having to pay out for a whole share.
Purchasing dividend reinvestment plans (DRIPs) is a large well-known means for people to invest in the stock market. DRIPs, and other closed-end funds, enable existing investors to buy stock directly from a corporation. Traders buy stock shares, after which the resulting dividend payouts are reinvested on their behalf to enable the growth of the shares owned. A considerable number of dividend reinvestment plans enable traders to make voluntary funds payments directly to the strategies to buy shares.
DRIP’s vary significantly from a single corporation to yet another. Even though the majority of DRIP’s demand investors to own basically a single share to sign up, some might need shareholders to own up to 50 shares to be eligible. Whilst the majority of plans impose absolutely no costs for taking part in their DRIPs, several corporations impose commissions as well as fees (Reagan, 2007). However, one can use a number of existing avenues to determine the eligibility requirements laid down by different companies participating in dividend reinvestment plans. It is important to identify the plan specifics, more especially, the requirements for eligibility before investing in the stock. The dividend investment plan, as well as share growth, is illustrated in the table below:
From the table, the investor owned $100 worth of shares initially; a dividend of 36% was paid for every quarter of 2010, and then was re-invested into the shares of the company without any commission being charged. The result is that, the owner’s shares undergo continuous growth. Basically, under DRIP plan, the investor only pays a onetime brokerage fees when purchasing the initial stock.
Drips are a means to commence investment using a extremely little quantity of funds, and to maintain investment on a monthly basis (or simply, as regularly as an individual will be able to manage) whether in little or even huge sums, whilst staying away from broker agent commission rates and also reinvesting virtually all payouts ( Reagan, 2007). In the long-term, it is a fantastic as well as “calm’ based method to expand cash over time, because one has money operating for them within organizations. Ideally, one does not anticipate selling the shares in the shorter duration.
DIRP’s/DIP’s versus online stock buying
The two methods presented in this paper illustrate different perspectives that one may adopt, in investing in shares. The costs, requirements, as well as eligibility, differs. Unlike online stock trading where commission is charged based on transactions, DIP’s/DIRP’s charge a onetime entry fee after which one can continuously re-invest the payouts generated by the investments. In some instances, DIP’s/DIRP’s allow the shareholders to deposit additional funds to facilitate purchase of additional shares, either at a reduced cost or even free of charge. The major differences between the two are summarized in the table below
Conclusion
Each investment alternative has its advantages as well as disadvantages. The option an individual chooses should be guided by informed decisions. While DIRP’s and DIP’s allow shares to grow based on re-investment of the earned dividends, the online trading option allows client’s to personally trade with their investments, and hence provide them with freedom to control their trade activities. Both present their own unique risks and as such one needs to be fully aware of the risks, and possible rewards associated with their ventures. Making the right choices is important and this can only be achieved if one bases his/her decisions on rational choices. Generally, no option is a guarantee to instant money making or a short-cut to wealth. However, online trading is more risky to newer beginners and hence one should seek as much information as possible before embarking on it.
Reference
Charles, B. C. (2010). Dividend Reinvestment Plan Starter Guide. DRIP Investor, 1- 8.
Jenny, S. (2009). Investing Online. Investment Choices, 23(3), 34-39.
Reagan, B. (2007). Choosing the best investment options, The Investor,12(3), 67-72.
Travolta, S. (2008). Investing options. Investment journal, 2(1), 123-126.