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In the old days, if you wanted to purchase a stock you had to call up your broker, give them your trade order, pay a commission, and sit by the phone to await their confirmation. With the ease of the Internet however, came brokerage firms offering immediate and discounted online trading. From Scottrade, to E-Trade, to Vanguard, these online brokerage firms offer “ordinary” citizens the opportunity to manage their portfolio on their own.

So should you?

What are the advantages and disadvantages of online trading? How does one go about getting an account? How does one chose what to buy and sell . . . and when to buy and sell? When is it appropriate to manage your own investment portfolio and when is it best to leave it to the professionals?

This is the first of a series of articles on Investing Online 101. Here’s what you need to know before your first share is bought.

Advantages of Online Trading:

Flexibility: Online trading is nearly instantaneous, providing you the freedom to trade at your leisure from anywhere, anytime. No need to make a call, travel to your broker’s office, or even get dressed. This flexibility means you have the freedom of watching the market and making quick trades if needed. You don’t have to wait on anyone other than yourself.

Expenses: For the most part, transaction costs are usually lower for online trades than traditional brokerage firms. E-Trade offers trades starting at $6.99, Scottrade at $7, and TD Ameritrade at $10. One reason for this is because overhead is obviously lower for online firms. Another reason for this however, leads us to one of the disadvantages of online trading which is no advice.

Disadvantages of Online Trading:

No Advice: Buyer beware! Unlike traditional brokerage firms that may offer investment advice specifically for your situation, you won’t find that online. Therefore, it might pay for inexperienced investors to meet with an investment advisor while still new to the game. You also won’t have guidance as to what price you should buy and sell with an online firm.

Expenses: While these can be an advantage because of low cost, many investors become “trading happy” and begin to make excessive daily trades which can not only lead to higher transaction costs, but possibly lower returns as well.

First Thing’s First:

While anyone can open an online trading account, it is much more difficult to understand the full implications of managing your own portfolio. So before you click away to day trading, become familiar with online investment research and screening tools. Some popular investment education sites include www.investingonline.org, www.fool.com, www.investopedia.com, www.kiplinger.com, and www.finance.yahoo.com. These websites can serve as a resource of how to buy and sell online as well as provide current market and economic updates and individual stock information. Become familiar with these tools before opening an online investment account.

Practice before you Play:

While it might sound frustrating, if you are a beginning investor I highly suggest you practice before you play. Take a few days or weeks (whatever you feel comfortable with) and make pretend stock selections and transactions. Keep a spreadsheet of fantasy stocks you buy and sell and at what price. Include transaction costs to make the illustration as accurate as possible. You can even use Monopoly money as you practice. The idea here is to begin to understand your investment style: what you are comfortable with you and what you aren’t. At the end of your fantasy training ask yourself honestly if you would feel comfortable managing your own portfolio of money.In the next article we will discuss stock selection. How do you know when a stock pick is a good one? We will also discuss step by step instructions on placing an online trade. Until then, do your homework and the money will follow!