The Wild World of Web Trading

Today, more than one-quarter of all retail stock orders are placed using the Internet, and one in seven of all securities orders are being transacted online. Earlier this year, SEC Chairman Arthur Levitt stated, "The Internet and other new technologies… [are] transforming how our capital markets operate."

The popularity of online trading has turned the financial industry upside down. It has left many brokerages scrambling to capture the new market of investors. On December 1, 1999, Merrill Lynch, America's pre-eminent stockbroker (a.k.a. the dinosaur of the industry), launched its Web-based stock trading site. This illustrates how the net is changing the way Americans --- including old-style brokers --- trade stocks.


How It Works

There are basically three methods being used by brokerage firms. Some firms provide customers with special software that has been designed for the company. Customers use the software to connect directly with the broker via modem.

Other firms offer online trading through partnerships with consumer online services like AOL and Compuserve.

The method that is now growing in popularity is brokerage access via the World Wide Web. This method is used by companies such as Ameritrade and E*TRADE.


Advantages

One of the biggest advantages to online trading is the cost. Online trades have an average cost of $14 to $20 a trade, which is significantly cheaper than trades executed by full-service brokers.

Also, there is the benefit of being able to place an order any time, and not having to work around a broker's hours.

Lastly, many people enjoy the control and thrill that placing their own orders provides them.


Disadvantages

Most individual investors do not have access to as much information, nor do they have as much training as money managers do, so making educated decisions is more difficult. Therefore, it is unlikely that online traders will make as much money as their professional counterparts.

Online trading is also very impersonal. Many investors miss the human interaction, and become frustrated with the process.

Finally, online trading is susceptible to technological breakdowns like busy signals and server crashes. Technology "blips" can be particularly frustrating, and sometimes costly, when a stock is "trading fast."


Places to go for online trading

Below is a list of some of the online brokerages available. This list was selected randomly, and does not represent a recommendation to use these services.

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