Are you ready to do
your trading online?
In the mid-1990s, technology intersected
opportunity at the corner of Main Street and Wall Street as millions
of individual investors flocked to newly launched online stock brokerages
to cash in on the tech-stock-driven bull market.
In those heady days, almost everyone knew someone
-- their grocer, their gardener, their letter carrier -- who had gone from
rags to riches with the mere click of a mouse.
In the midst of that historic run-up, DIY (do-it-yourself)
investors empowered by online discount brokerages such as E*Trade
and Datek and e-friendly brick-to-click investment firms such as
Charles Schwab & Co. virtually revolutionized the industry's
Online brokers whose commissions were 5 percent to
10 percent of those charged by full-service firms gave the old guard
little choice but to follow suit.
The double-edged sword
So many people jumped into online investing that in 1999,
Deb Brotner, director of securities for Washington state's Department
of Financial Institutions, and others like her developed Investingonline.org,
a Web site devoted to educating self-styled day traders. It is underwritten
by the North American Securities Administrators Association, and
is the only independent, noncommercial site of its kind.
"Investors didn't understand the technology of
it because they were all geniuses," she chuckles. "People
didn't understand that when you wanted to buy 100 shares, you didn't
hit the button three times."
When the party came to a screeching halt shortly after
the turn of the millennium, so too did much of the hoopla over online
That ice-water shower quickly separated the investors
from the speculators, according to Dan Alvarez, an analyst,
instructor and investment manager based in Miami.
"There is a very fine line between investing
and speculating; those two categories have been blurred in people's
minds," he says. "If you're talking about just getting
online and buying and selling stocks, to me that's speculation.
What goes behind the stock selection process, you don't learn online."
Becoming a wise investor, online or off, requires
a good deal of research and education. You must learn not only how
stocks, bonds and mutual funds work, but how to read a financial
statement, analyze a company and its market competitors, and develop
and stay true to an investment strategy that can get you where you
want to go.
"It's very easy to make a transaction online,"
says Alvarez. "It is not easy to invest wisely."
Brotner, who opened an online account in the interest
of research, agrees that online trading is definitely a double-edged
"I thought I should do a few trades before I
could give people advice, so I got an online account. I understand
impulse buying now. I didn't do very well," she says. "The
good part is you can trade immediately upon making a decision; the
bad part is you can trade immediately upon making a decision."
Despite the risks, online trading has provided self-directed
investors with a fast, thrifty means to steer their own financial