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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 commission structure.

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.

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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 investing.

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 sword.

"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 ships.

 

(continued on next page)
-- Posted: Feb. 11, 2003
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