acquired by older brokerage houses.
“Most large firms are looking at online trading or to purchase other online trading firms,” says Renford Bernard, a trader at National Discount Brokers (www.ndb.com). “We expect that online trading will be 90% of the business within the next two years. It’s a lot cheaper and very fast.”
With the influx of new players in the field comes heightened competition, which in turn rewards investors in the form of lower trading prices and more “value-added” services. Indeed, cost has been a primary driving force in the massive growth of the number of online investors. With discount brokerage firms, fees for placing telephone orders can range from $25-$55. While with full-price firms, rates can reach as high as $110.
“The great thing about it is the price,” says Janell M. Lee, a 35-year- old self-employed C.P.A. in Oakland, California, who has been trading online since last fall. “And you’re not tied to the phone talking to a broker which entails higher fees.”
Lee says while security concerns linger in the back of her mind, overall she is confident and checks her online portfolio often “to make sure everything is OK.” Most brokers use secure servers and service-only customers who use browsers that connect to secure Web sites. Both Netscape and Microsoft browsers are equipped with this capability.
WHO DO YOU CALL?
There are a wealth of options when shopping around for an online broker. The most common way to trade is directly on the Web. Online proprietary services like America Online and CompuServe also offer access to brokerage firms. Some companies like Charles Schwab (www.eschwab.com) and Fidelity (personal.fidelity.com) offer customized software that investors can use with private dial-up access.
But brokerage firms basically fall into three categories: full-service, discount and deep discount. Full-service or full-price firms like American Express Financial Direct (www.americanexpress.com/direct) and Charles Schwab are primarily for investors who want to trade online but are still timid about the idea. They are the “hand-holding firms.”
Many of the traditional brokerage houses that have set up online trading divisions offer the most help to wary investors who are unsure about investing online or don’t have the time to nurse their accounts. They provide premium services combined with generous customer support and phone advice backup. They are also a bridge to their current customers who want to trade online but don’t want to change brokers. As a result, their commissions are heftier than discount and deep discount brokerages.
American Express Financial Direct has a minimum commission of $26.95 per trade, compared to under $15 per trade for many discount brokers with similar services. Schwab’s commission per trade is even higher at $29.95. However, many discount brokers offer just as many services as the older firms do–with much lower commissions.
In addition, the online trading sites of traditional brokers are not necessarily more user-friendly or better designed than the discount firms. For example, the American Express Financial Direct Web site looks nice, but takes too long to download–even with a 28.8 kbps modem. If you’re looking to