Many independent investors that no longer seek the help or advice of the most common stock brokers make the choice to Online Stock Trading. Instead, these investors are opening online trading accounts with discount brokerage firms and take control of their Online Trading.

While the technical advances have created numerous softwares there is still a need from potential stock market investors for Online Stock Trading education.

When an investor is trading stocks online, he makes his choices based on his own research and there is no actual human broker resting on the other side to confirm his order. As a result, it is extremely important that investors and online traders alike take a long breath before they press the buy or sell button on their Online Trading software.

There are many stories in which investors have pressed the buy button instead of the sell on their online trading software by mistake.

Certainly, there are advantages to Online Stock Trading, but the casual investor will have a learning curve if he wants to turn into an online trader. In addition, an online trader needs to have more than basic computer skills if he wants to excel in Online Trading.

Actually, some of the Online Stock Trading software can be quite complicated if a trader only has basic knowledge of computer operation. However, it is a logical course of action to face the Online Trading monster rather than run away from it.

Beginning of the Online Stock Trading

The recent years of the 1990’s saw the start of Online Trading when day traders ran up their Internet stocks. These consumers then made online trading so popular that nowadays, virtually anyone can start Online Trading.

Getting Started with Online Stock Trading

To get started, you have to choose an Online Trading company, pay the membership fee that can range from about $5 to about $20, and also set up an account either for the Individual Retirement Account, money market funds, mutual funds, or trading of regular stocks too.

Once an Online Stock Trading account has been set up, then you can most defiantly begin trading and managing your funds. Most Online Trading companies provide you with paraphernalia so that you can easily access the market in real time, fast examine trends, and trade instantaneously.

Succeeding in Online Stock Trading

Always remember to view your portfolio online on a regular basis. You have to make full use of the Online Trading Company research facilities in order to maintain and grow your investments simultaneously. Download the applicable financial reports that come for free with your membership.

It is also wise to study the histories and performance evaluations of all the stocks that you wish to trade during Online Stock Trading.

Most of the Online Stock Trading is done on the exchanges, which are places where consumers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor, by a method known as open outcry.

Many people must have probably seen pictures of a trading floor, in which traders are wildly throwing their arms up, waving, yelling, and signaling to each other. This particular sort of auction is new in stock exchanges and commodity exchanges where traders can enter “verbal” bids and offers simultaneously.

The other kind of Online Stock Trading exchange is a virtual kind, composed of a network of computers where trades are made electronically via traders at computer terminals.

Actual Online Stock Trading is based on an auction market model where a potential buyer bids a specific price for a stock and a potential seller asks a specific price for the stock. The purchasing or selling at market means you will accept any bid or ask price for the stock.

When the bid and ask prices match, a sale takes place on a first come first serve basis if there are multiple bidders or askers at a given price.

In Stock Trading the purpose of a stock exchange is to facilitate the switch over of securities between people and sellers, consequently providing a marketplace either virtual or real.

Now imagine how difficult it could have been to be able to sell shares and what a disadvantage you could be at with respect to the buyer if you or someone you know had to call around trying to locate a buyer, when selling a house. In actual fact, Online Stock Trading in a stock exchange is nothing more than a super-sophisticated farmers market providing a meeting place for consumers and sellers together.

Stock Trading Myths – Share Price and P/E Ratio

A common misconception among investors and traders is that a stock at $5 per share is “cheaper” than a stock trading at $500 per share. This seems to be common sense, but in reality, it just isn’t true.

Many investors, particularly newcomers to the world of trading, are tempted by the allure of a “cheap” stock trading at under $10, failing to realize that the stock may not be cheap after all.

For many, this lesson is learned the hard way – through the loss of hard-earned money. Here are some simple concepts and examples illustrating what actually makes a stock “cheap.”

Stock Trading Myth #1: All Stocks Are Created Equal

The idea that a stock trading for a triple-digit share price is more expensive than a one trading for less than $10 is one of the most persistent, and yet completely baseless of all trading myths.

On the surface, this stock trading myth makes perfect sense. After all, a bottle of wine that sells for $280 is undoubtedly more expensive than a bottle of the same size that sells for $2. Sure, you would expect the $280 bottle of wine to be of higher quality, but that’s a matter of personal preference, not fact.

The fact of the matter is that the two bottle of wines are equal in terms of size, but not in terms of price – one is expensive and one is cheap.

When it comes to trading, the difference is that not all shares of stock are created equal. They are, in fact, not all the same size. If a company has a total of 1 million shares of stock outstanding, and you own 100,000 shares, you own 10 percent of the company.

If another company has a total of 10 million outstanding shares, and you also own 100,000, you own just 1 percent of the company. Unlike the two 750 ml bottles of wine, these two stocks are not equal in any way.

Stock Trading Myth #2: Sirius Is Cheaper Than XM

Take the example of Sirius (SIRI) and XM Satellite Radio (XMSR). Sirius trades for around $5 per share and XM trades at $15. On the surface, it would seem as though XM were three times as expensive as Sirius, but upon closer inspection, Sirius is clearly the more expensive of the two.

This is because XM has around 258 million total shares outstanding, whereas Sirius has 1.4 billion. If you owned 10 million shares of XM, you’d own approximately 4 percent of the company, whereas if you owned 10 million shares of Sirius, you’d own less than 1 percent of the total shares.

Neither Sirius nor XM have made positive earnings (profits) as of yet. Sirius had annual sales of $325 million in 2005, whereas XM had sales of $663 million.

Per share, this equals sales of about $0.24 per share of Sirius. XM had sales per share of $2.88. Since the share price of Sirius is about 1/3 that of XM, it would be fair to multiply Sirius’s results by three.

Even making this adjustment, $15 of Sirius stock earned sales of just $0.72 in 2005, whereas $15 of XM stock earned $2.88. XM is, by all reasonable measures, much cheaper than Sirius.

Do you see the insanity of thinking that Sirius is cheaper just because its share price is lower? A stock trading at a low share price is not necessarily cheap. A stock at a high share price is not necessarily expensive.

The above example used sales data because neither company has turned a profit as of yet. Normally, earnings (profits) data would be used to determine the stock’s P/E (price-to-earnings) ratio.

Conventional wisdom says that a stock at a lower P/E ratio is cheaper than a stock trading at a high P/E ratio, and in this rare case, conventional wisdom is correct. But anyone who says that a stock at a lower P/E is a better value than a stock trading at a higher P/E takes the conventional wisdom too far.

Just think of the wine example: Some $2 wine might be as good as some $10 wine. In this case, the $2 bottle is a bargain. But some, if not most, $2 wine is cheap for a reason. The same is true for a stock at a low P/E ratio.

Stock Trading Myth #3: Low P/E is Good; High P/E is Bad

The key to making money on a stock is to find a stock at a value. Mere share price is not enough information. P/E ratio, income statement and balance sheet data, and technical chart patterns are the tools of true stock trading pros.

First and foremost, though, novices must overcome popular trading myths that only inhibit stock trading success.