Online Investment and Trading Services Compared

Original date: September 11, 2006 4:44 PM by sonnik

Recently, I wanted to diversify some funds I had invested. I've been involved with the market before, but like many people, I had my financial ass handed to me in 2002. I wasn't even someone who invested in risky dotcom businesses. I had invested in trustworthy, reliable stocks. However, as I'm most familiar with technology - I invested in technology. Technology stocks were dragged down by the failed dotcoms. Hence, I started a four year trial separation. I'm giving the market another try now.

The problem of deciding which service to use for online trading has been on my mind. It's not a decision to be made lightly. If you're putting assets in the hands of an institution, you'll probably want to make sure there aren't any annoying problems that will cause you heartache later.

obviously the first step in deciding what service to use, is to Google the term Online Trading. You'll get some obvious results. After a few clicks around a web site (and web site usability was a weighing factor for me) - I narrowed it down to two options: E-Trade and Scottrade.

By just scratching the surface, you'll see that each of the company tends to give some incentives to higher volume/higher value portfolio traders.

For E-Trade, you'll only be treated to the $7 a trade if you transact more than 1500 times in a given quarter. For investors with less than $50,000 in assets and light trading - this goes up to $13 a trade. Prices range in between depending on the number of trades per quarter and the size of your portfolio. In addition, you may be charged $40 per quarter, which may be waived if you utilize other E-Trade services.

Scottrade offers $7 trades. They also offer a dedicated software package that gives a few more "power" features than what the typical web interface may be able to provide, free with the most basic account. It appears as though E-Trade offers the same features, though only available if you trade 30 times or more in a quarter. Of course, this is essentially the same information available on their websites, with streaming quotes added on top. Any brokerage account will give you real-time quotes on the website; the streaming quotes feature may not be worth the extra expenditure for you.

Both have a number of jacked-up fees for the little extra services. Need funds wired out of your brokerage to a bank? That's a $25 fee with E-trade and $20 with Scottrade. Overall, Scottrade seems to be a little more down-to-earth with all of the fees.

Speaking of transferring funds, getting money into the account is free (go figure). Scottrade also requires the lesser initial deposit, $500 as opposed to E-Trade's $1000. Scottrade also offers more local branches in case you need assistance. Be aware however, that using your telephone or speaking to a real person - you're likely to have a higher commission. A broker-assisted trade is $27 with Scottrade, with E-Trade it's $45-$55.

E-Trade seems to mimic some typical banking features. You're given checking and online bill pay options, with up to five ATM fees refunded per month, so if using the funds or profits in your account is an issue - this may be an appeal.

As I realized E-Trade is trying to mimic a bank, I wondered if banks were trying to mimic stock brokers. If so, would they offer competitive online trading options? It turns out, they do.

I went to my particular bank's website and realized they actually offered a competitive option. I could set up an account that would link directly to either my checking or savings for funding stock purchases. Likewise, any proceeds would be easily deposited back into said account. My bank offers $10 trades. This is slightly more costly than Scottrade, but the ease of integration into my existing accounts had great appeal to me. (The $3 difference is easily offset by not paying all the various fees I probably would be using a stand-alone online brokerage.) The bank offers all of the typical trading features (research, real-time quotes).

I checked a few of the large national banks. All of them seem to have some online investing options. I even checked a few smaller regional banks that appear to offer this ability as well. For reference, I checked the website of a few small locally operated banks from my home town. They did not have any online trading features (in fact, their online banking looked kind of disappointing). So, if your bank is somewhat sizable, you may want to look into their trading services.

One caveat of dealing with your bank: The typical "bank" people can't directly assist you with any investment accounts (mainly because of some FDIC regulations, it appears). So, if your local branch can't really help you with investment accounts, don't be upset or caught off guard. The banks do offer typical toll free account assistance.

Like the dedicated online trading services, the banks will charge you more for telephone or broker assisted orders. Obviously, if you're not comfortable with performing trades online, stop and read up a little and talk to someone.