What is safety when it comes to any form of investments? Is it the removal of all risks of making a loss? Or is it the assurance that you will not be defrauded as you embark on whatever financial venture you wish to get started on?
Investments and risks go hand in hand. No matter where you put your money, there is always a chance that you may lose some or all of it, either through losses or through some unscrupulous means. Even your very trustworthy bank is not immune to landing itself in a state of receivership, if it’s poorly managed. As an investor, one quickly realises that having a 100% risk-free investment is as impossible as impossible can possibly get, and therefore, the most one can do is try predict and mitigate the chances of running into losses in whatever shape or form.
So, is buying stocks online really safe?
When most people ask this question, what they really want to know is if they run a higher risk of fraud when embarking online trading than going through a live broker. The truth is, investing in online trading is more or less as safe as its more traditional counterpart. And while Hollywood movies may exaggerate the risks of cyber-crime, most of these can be reduced by just making use of an online brokerage that you can trust and a bit of research. One of the things that one can look for when choosing their online broker is whether or not they make use of high-end encryption systems. To those who may not be very technologically adept, encryption refers to the scrambling of data so that only the person that is meant to read it can read it. You can tell if your broker is using secure channels just by checking if your browser shows a locked padlock or a key, especially on pages that require you to input financial data such as bank and card details. Most reputable online brokers use a 128-bit algorithm for encryption which is the highest system of encryption allowed by governments around the world. So you can be sure that your money is safe with them.
Perhaps a bigger risk, when it comes to online trading, is buying the wrong thing at the wrong price. This often happens when one chooses buys shares on less reputable platforms such as eBay or online forums for investors. To avoid this, you must be sure to do extensive research on the stock you are purchasing so as to be sure of it when buying. Fraudsters have also run wild on online platforms where they employ schemes such as the pump-and-dump scheme to make money of an unsuspecting investor. The fraudsters spread fake news on a certain stock online, and the new wave of awareness of the stock results in an increase in price of that stock as people buy into the overvalued stock. The schemers then sell their shares at a great profit after which the value of the stocks plummet as the perpetrators stop advertising it online. Other defrauding schemes that you must be wary of includes fraudulent IPO’s and fraudulent company information which may mislead you, as an investor, as you trade online.
Online trading has brought with it the concept of international share trading where investors can now easily access and buy into stocks in foreign areas. However, when it comes to international share trading, things to be wary about include higher transaction costs that may be charged by the brokerage, and fluctuations value of the currencies. With regards to the latter, if not timed well, you may find that changes in the forex market may result either in losses, or may cut down on your profits. The changes in forex may, however, serve to boost your profits if you leverage them well. You just need to be aware of them as you think of investing in overseas stock.
At the end of the day, buying stocks online, just like any other investments, comes with its risks, but is not necessarily unsafe. With good investment habits such as protecting your money before thinking about profit, only investing in things you are sure about and trading with discipline, you will be sure to reap the benefits of this very financial venture. Just keep in mind, when it comes to stocks, if it’s too good to be true, it probably is; and that even the pros don’t win on every trade.