Forty years ago when you bought stocks, you would visit your broker. He would then fill out a trade ticket and call it in. Your confirmation would be receiving a paper certificate showing that you were the owner of the stock. Twenty years ago you would still have to use a broker to buy your stocks. However, when you went into their office they would be able to use their computer to place the trade, helping to speed up the process. Your confirmation would be a digital representation of that stock; no more certificates. By the late 1990’s it became reasonable to buy and sell your own stocks online. The process was cumbersome, and slow internet caused a big time lag in the purchase, but as the internet was streamlined, the process eased dramatically.
Back when everyone was forced to use a broker, they were often buying stocks for the longer term. They would purchase a good company that was highly valued. As the company would grow and issue dividends, people would keep their stock enjoying the growth. However, now that people can do their own trading online (cheaply with low commissions) the buying and selling occurs more often. Many people buy and sell in the same day after making a small gain in their account. This day trading has had quite the affect on the market.
If you take a look at a graph of the S&P 500 index, you will see that from the 1970’s until the mid 19080’s there is a slow and steady increase in value (there are still ups and down, but look at the average). From the mid 1980’s until the mid 1990’s that pace quickens. From the mid 1990’s until present there are rapid increases in value, with rapid decreases to accompany. The chart changes dramatically in the last 15 -20 years. If we look at technological advances during these time periods we see that the slow gains are during a time when computers were virtually non-existent. From the mid 80’s until the mid 90’s they were being used to help streamline the trading process and make the market more efficient. Starting in the mid 1990’s amateur day traders were popping up, the internet was taking off, and the instant buys and sells were causing the market to have much more volatility.
Computers and the internet have streamlined the stock trading market immensely. However, the influx of people that do not really know what they are doing has caused more volatility. The new normal is that there will be times or rapid increases in the market, and times of rapid decreases. But if we take a long term view, and notice on that graph of the S&P, we will see that the average since the mid 1990’s is a little better than the average from the mid 1980’s until the mid 1990’s. The difference is trying to endure the rapid declines between the rapid gains.
If you have been wondering how to open an online share trading account, it is relatively easy. Most companies have store fronts that you can walk in to open your account (I did this at my local Scottrade, and no I did not choose them for their name); otherwise you can do it all online. Keep in mind that analyzing stocks and knowing what is a good buy takes a lot of time and practice. My advice is to use money that you do not mind losing, because there is a good chance that you will lose it all in a risky investment. If you do make good gains, keep up the strategy. It can be exciting to see your account grow rapidly because you did your homework and chose good stocks.
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