Here is an interesting and rather humorous story from my brief experience dealing with online trading. In February of 2006, after receiving my income tax refund, I decided to open an account with an on-line brokerage company. When opening my account I deposited $1500 which was the minimum amount required to start an account. For those of you that may not be familiar with online trading there are fees for buying and selling stock. The fees for the brokerage I chose were $7.00 to buy and $7.00 to sell. I had decided that before I bought any stock that I would conduct proper research on each company and soon realized that I had no clue about what I was doing. Well, after spending countless hours reading company profiles, earnings, 52 week highs and lows, I made my first couple of stock purchases. Over the next few days and weeks I began buying and selling stocks as if I was a 20 year veteran of Wall Street. Now, I won’t bore you will all the little details of what I bought and sold because we would be here for hours if not days but the amazing part is the end result.
Over 6 months of online trading I had purchased $12,536.57 worth of various stocks and sold $12,810.62 worth of various stocks. I made a whopping $274.05 in that 6 month period of time. The funny part is the amount of money the brokerage made from my trading activities, which totaled at $1050 in buying and selling fees. The brokerage made almost 5 times what I did and all of this was done with just $1500 dollars.
When I tell people this story they laugh and think its funny, which of course I do too, but the educational value of what I learned is priceless. Recently, I completed a college finance course and told this story when the professor asked if anyone had any knowledge about how the stock market works, the information I shared with the class paid off with an “A”.