The Top Ten Discount Brokers
We've identified the best cut-rate brokers online. So where
should you trade? That depends on you
BY SEAN T. KELLY
Like every other enterprise that involves a middleman, the
business of playing the stock market has been radically
reinvented--thanks to the Internet. In the old days, active
traders had to visit their broker's office to find real-time
information such as midday financial news and quotes. Today,
however, those data--and lots more--flow freely across the Net.
Stock quotes, company news, analyst reports, SEC filings, reams
of financial gossip and just about every other kind of
investment information is out there for the browsing. (See
"Rating the Top Sites," page 40.) All you need to start trading,
then, is someone to place your orders.
That's where discount brokers come in. Web-based discount
brokers help customers manage their portfolios, but they charge
relatively low commissions--as little as $7 a trade. (By
contrast, a full-service broker can get upwards of $120 a
trade.) Most discount brokers can also place orders as quickly
as their full-service cousins; many use the same order desks for
their multimillion-dollar full-service institutional clients.
And most of them are covered by the same government-sponsored
Securities Investor Protection Corporation, which insures
full-service accounts of up to $100,000 in cash and $400,000 in
other assets (but check, just to be safe). They're relatively
reliable (February system crashes from the likes of E*Trade
notwithstanding), as long as the investor uses common sense.
The discount-broker business is thriving and as varied as its
clientele, catering to every kind of investor, from aggressive
day traders to casual hobbyists. At last count, there were nearly
100 of them online--good news for day traders, since all that
competition means steeply falling commissions. According to a
recent analysis by Credit Suisse First Boston, the average cost
per trade among the top discount brokers is $15.75. By contrast,
in the first quarter of 1996, customers paid an average of $52.89
per trade.
Still, you get what you pay for. The Big Three, Charles Schwab,
Fidelity and Quick & Reilly, offer a fairly high degree of
research for $20 to $30 per trade) and more service than the
"deep discount" brokerages, such as Suretrade, which provide the
minimum for $7 to $10 per trade.
So which brokerage is for you? That depends on what you need. All
day traders are not created equal. Some exchange securities many
times a day and demand a trading screen that looks like something
from NASA. Others make only fine adjustments to their portfolios
as needed.
Most experts tend to divide day traders into four basic types:
- Hard-core
This is the new breed of day trader (see our cover
story), someone who trades many times a day, pays as little as
possible per transaction and demands speed and power.
- Fundamentalist
Speed isn't nearly as important as reliable
information and extensive research. These people tend to trade
less than hard-cores--and study more.
- Long Viewer
Stability and long-term growth are key for this
investor, so instruments such as mutual funds and IRA accounts
tend to be critical. The long viewer is a conservative investor.
- All-in-one
These folks prefer a comprehensive package of
financial products--stock trading, mutual funds, credit cards,
bill payment and checking--all under one roof. They have
simplicity in mind when looking for online access to accounts.
Consider which of these fits your mind-set. Then examine the
following discount brokerage summaries to determine which levels
of price and service work best for you. Plan to trade all day,
every day? Look for a site with low commissions, a streamlined
trade interface and real-time account updates. Want to invest for
your kid's degree at Stanford? Look to the reliable brands that
will still be there when you are, with products that set their
sights on payoffs years down the road.
PAGE 1 | 2 | 3
PHOTO-ILLUSTRATION FOR TIME DIGITAL BY 2FACE
