Is Online Trading Secure?
With all these viruses and computer hacker stories that you see in cheesy movies, we certainly understand why someone might feel uncomfortable leaving his or her financial information inside somebody else's computer system and making transactions through the Internet. You should not fear there is a heck of a lot of protection built into the system.
While concerns about online security will always be there, rest assured that the brokerages themselves have a very, very high stake in making you feel comfortable about the level of security being used. All online brokerages have a portion of their website devoted to explaining the measures they employ to protect your transactions. While it may be true in this world that nothing is perfectly safe, online trading is certainly as close as offline trading in providing safety in your financial transactions.
If you are making securities transactions that take place over the Internet, make sure that your brokerage is using high-end encryption. Encryption is the process developed by super-genius computer nerds to scramble data so that only the intended receiver can use it. The higher the number of bits in an algorithm, the more sophisticated the encryption. A 128-bit algorithm is the encryption level used by most online brokerages. It is the highest level of security currently allowed by U.S. law.
Is 128-bit encryption enough for you? Stealing information that is encrypted at that level is virtually impossible even if it does seem awfully easy when you watch those movies about basement-dwelling unemployed computer hackers.
What you should pay attention to is whether the security measures are operating while you are making your transactions. Depending on what browser you use, you will either see a closed padlock icon or a key icon to demonstrate that security is operating. When you see that those icons are unbroken, you will know that your transaction is occurring in a secure sockets layer. When you see these, you will know that your transaction is being encrypted and accordingly, you should feel safe about what you are doing.
Additionally, online brokerage services feature passwords and personal identification numbers (PINs) that you select. Your PIN needs to be given every time you make a transaction within your account, and you can change your PIN as often as you like.
Also, no matter which brokerage you are selecting, make sure it is insured by the Securities Investor Protection Corporation (SIPC), which provides up to $500,000 of coverage (limited to $100,000 for cash).