Online Trading Tips - Insider's Guide to Safeguarding Your Investments

Trading stocks over the internet is a marked improvement over the old-fashioned way, especially for the casual investor. Not only have commission prices plunged, but most stock brokerage web sites provide tools to research and track your investment. Gone are the days of relying solely on your stockbroker's advice. But with this empowerment come risks. Here are ten tips that should help you skirt around potential financial calamities.

1. Research stocks carefully: Impulse buying is risky, and trading online exacerbates the temptation. Stocks in the news are especially risky. This doesn't mean that news should be ignored, but good news can frequently spike a stock. You don't want the price you paid to be on the pointed end of that spike. Be sure that you know the company's business plan, its recent news events, the competition it's up against, and the statistics that comprise the stock's fundamentals. I'll cover the importance of knowing the stock's price/earnings ratio and its "moving averages" later, but I'll mention another important item now: the debt/equity ratio. A stock with a ratio greater than 1.00 means that your investment is leveraged to some extent and therefore riskier, especially because you, a shareholder, are last to get paid in case of bankruptcy. You should also consult the latest quarterly financial statement or annual report for your candidate stock. Luckily, because you trade online, all this information is readily available. Check your brokerage's website, the company's website, or popular portals such as Yahoo Financial and MSN Money. It's a temptation to buy a stock after you've put in time researching it, but don't feel that you've wasted time if something makes you nervous and you decide not to buy. The money you might have tied up in a bad investment can now be put to more productive work.