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Online Trading for Kids

Watch Your Step

Just because it's easy and cheap to trade online, don't start day trading (the practice of jumping in and out of a stock before the close of trading). Stick to long-term investing. Arthur Levitt, chairman of the Securities and Exchange Commission, warns that day trading, which is highly risky for professionals, can be disastrous for amateurs.

The advent of online trading is still relatively new, and all the kinks haven't been worked out yet. There are still problems to be aware of:

  • The price of the stock that you see on the screen may not be the price you actually pay for stock. For example, you might put in a market order for 100 shares when you see the price at $25. By the time your order is executed, the stock has jumped to $60. You expect to pay $2,500 (besides commissions), but the bill is $6,000—more than double what you anticipated. One online company waives the commission if it doesn't execute your order within 60 seconds, but there's no price guarantee for the stock.
  • You put in a market order to buy 100 shares but don't receive an electronic confirmation, so you enter the information again. Now you've actually purchased 200 shares. The same thing can happen in reverse. You might try to sell the 100 shares held in your child's custodial account, don't receive confirmation, and you try to sell them again. Now you've actually sold 100 shares you've never even owned.
  • You put in an order to sell or buy but try to cancel immediately. You think you've acted before the order has been executed, or you may even have received an acknowledgment of the cancellation. The sale can still go through, though, and now you have to buy the stock you never intended to.

Some brokerage firms are trying to accommodate inadvertent slip-ups; they'll cancel these errors and make you whole again. But policies differ from company to company, so make sure you know who you're dealing with.

Here are some companies specializing in online trading:

  • Charles Schwab Online (www.schwab.com)
  • Lombard Institutional, a division of Discover Broker Direct of Morgan Stanley Dean Witter (www.lombard.com)
  • National Discount Brokers (www.pawws.com)
  • E*TRADE (www.etrade.com)
  • Ameritrade (www.ebroker.com)
  • Datek Online (www.datek.com)

More than 100 brokerage firms now have online trading. Many of the full-service firms, such as Merrill Lynch and Paine Webber, also offer online trading at reduced commissions.

Keeping Track of Things

Piggybank on It

Make is a practice to update these records on a regular basis. For example, enter information as soon as a confirmation is received on a buy or sell order. Also enter dividend information when it's sent to you, or update your records once a week or once a month.

How is your kid doing with his stock picks? To know this answer, your child should keep track of things. Use personal finance programs, such as Quicken, to keep records of stock holdings. Here's the type of information he'll want to enter:

  • When he bought the stock
  • How many shares he owns
  • What he paid per share
  • What he paid in commissions or other charges
  • Any dividends or other distributions that are paid on the stock
  • Any dividends that were reinvested (and at what price per share)
Watch Your Step

Most quotes online are delayed—for example, they may be 15 minutes behind the actual trading quotes. If you look at a quote at noon, you're really seeing what happened at 11:45 A.M. For real-time quotes, you may need to pay a fee for this service. For most investors, however, a delayed quote will do.

Piggybank on It

If you're a subscriber, AOL lets you track your own stock portfolio. Enter your stocks and, at any time of the day, click on AOL (under “$ Quote”) to see where they're at. The portfolio can be easily adjusted as dividends are reinvested or as stocks are bought or sold.

This information will let him see whether the stock is increasing in value or lagging behind what he had expected. It's also necessary to have this information for tax purposes so that he'll be able to figure his taxable gain when he sells shares.

In addition to keeping good records, your child can also use the computer to research possible new stock picks and to keep tabs on how things are doing. This is so easy that it can be done every day.

Here are just some of the ways to do research with the help of a computer:

  • Newspapers online. Each day, most local newspapers and all financial newspapers publish closing stock and mutual fund prices from the day before. Many papers now have online versions designed to let investors check the same information contained in the newsprint. Some information is free; other information requires the payment of a subscription fee.
  • Magazines online. Many financial magazines may not seem timely because they're published only once a month (or at some other interval). But magazines online are updated daily. For example,
  • Money Magazine Online gives a daily summary of important stories on investing.
  • Television programming online. Financial news can be found on many cable stations. Now it can also be found on these stations' Web sites: CNBC (www.cnbc.com), CNN Financial Network (www.cnnfn.com); MSNBC Commerce (www.msnbc.com/news/COM_Front.asp), and Bloomberg (www.bloomberg.com). In addition to news stores, these sites contain stock quotes, market reports, and other information that changes constantly. There's also weekly programs such as Louis Rukeyser's Wall Street Week on PBS (www.pbs.org/mpt/rukeyser).
  • Other Internet locations. Find daily or even up-to-the-minute market quotes on dozens of sites. Examples of stock quote sites include Data Broadcasting Corporation (www.dbc. com), PC Quote (www.pcquote.com), and Quote.com (www.quote.com).

Many search engines have market quotes available. Most brokerage firm Web sites also provide market quotes. Yahoo! News (in association with Reuters) presents business news items of interest to investors (dailynews.yahoo.com/tx/bs/summary.html).



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Excerpted from The Complete Idiot's Guide to Money-Smart Kids © 1999 by Barbara Weltman. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit Amazon's web site or call 1-800-253-6476.


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