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Trading stocks online was a natural progression for the internet, as was shopping, chatting, and research before it. The internet has brought the consumer a much greater freedom...the choice to stay in or go out, the choice to be social or reclusive, and now, the choice to research, choose and buy stocks on one's own or to give someone (a full-service brokerage) else the opportunity to do it for you. A full-service brokerage still has many benefits, and for those who really want to have no part in the buying and selling of their securities (and have the money to do so), these brokerages are very useful. I do, however, recommend that everyone, especially those who may have recently been divorced or widowed and were not formerly "in charge" of their investments, to look into an online, or at least a discount brokerage account. First of all, it can be a lot of fun...no, I'm serious. It isn't just about p/e ratios and daily Dow charts. However, we won't go into how great investing in the stock market can be because you probably wouldn't be reading about finding a brokerage if you didn't already think so.
Now, a word (or two) about the full-service brokerages...remember, even though they will do all kinds of stuff for you, they are essentially salesmen. They get a commission for every sale (trade), and they have their own opinions about what stocks you should buy.
Discount brokerages of which online brokerages are a part, and now, in most cases, the same thing, are essentially order-takers. Some offer more services than others, and so their commissions will be higher. However, as competition in the online trading business stiffens, even the deepest of discount brokers are now offering good research tools. Plus, if you are an active trader (with hopefully most of your money invested for the long term), there are of course many sites to extract information from. Just don't take any one site's commentary, especially about a particular investment, as the gospel. Look around, read up, and allow yourself time to get an "instinct" about the potential investment. Here are a few hints about online trading...
1. Be aware that the server of the brokerage could be down at anytime. Even the "best", have to rely their hardware, and sometimes hardware goes down. Make sure you have the brokerages phone number, it ought to be a toll-free number, so that you can make a crucial buy or sell in a timely manner. Also be aware that some online brokerages charge more for a phoned-in trade. Some heavy traders have accounts with two different brokers so that if one goes down, they can use the other and avoid phone fees.
2. "Check your work". Remember that old mantra from high school math? Well, it has come back to haunt us. Many brokerages cannot stop your transaction once you hit the 'send' button. Make sure you didn't punch in 200 shares when you meant 20!
3. Research the company thoroughly. Call their account number and see how quickly you get in touch with a real person. Ask friends with online accounts or participate in message boards and find out how quickly transactions will be executed and how good their customer service is. The ratings from Gomez Analysts below should help...
Gomez Analysts Online Broker Ratings:
For more information about these ratings visit the Gomez Analysts website.
For the "Hyperactive Trader" these important features were considered: low-cost trading, simple interface, and fast execution". The Top 10:
Datek Online
Waterhouse
Suretrade
E-Trade
Web Street
First Trade
DLJ Direct
Scottrade
Trading Direct
Quick & Reilly
The "Serious Investor" was described as a person who trades actively, values high-quality information, investment tools and research. The Top 10:
E-Trade
DLJ Direct
Discover
Suretrade
Schwab
Sovereign
Fidelity
Trading Direct
NDB
Waterhouse
The "Life-goal Planner" is into trading mutual funds for long-term growth. They need tools for financial planning and "portfolio optimization". A stable financial services provider is more important than the latest technology. The Top 10:
DLJ Direct
E-Trade
NDB
Schwab
Quick & Reilly
Waterhouse
Discover
AMEX
Datek
Fidelity
The "One Stop Shopper" is convenience-minded. They want a full package-stocks, funds, credit cards, bill paying and checking. The Top 10:
DLJ Direct
E-Trade
Schwab
AMEX
NDB
Fidelity
Quick & Reilly
Far Sight
Datek
Empire
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