About Online Investment Brokers
Online investment brokers were some of the first professionals to monetize the Internet. The stock market readily lent itself to online trading since electronic systems were put in place after the crash in 1987. Most notably, the NASDAQ instituted the Small Order Execution System (SOES) as an electronic means to bypass brokers and traders in order to have smaller orders executed. The first investment brokers to embrace Internet technology were discount stock brokers. Full-service brokers were not enthusiastic about Internet trading and research because it brought an end to their monopoly on real-time investment information.
-
History
-
Mainstream investment brokerages were hesitant to implement Internet trading platforms because it meant an end to their stranglehold on investment data. Up until the mid-1990s, investors had to call into their brokerage firm to get stock quotes, volume data and real-time news on the stocks they owned. Stockbrokers got pricing and volume information from Quotron terminals and real-time news from the Dow Jones Newswire. The first online investment brokers to see the opportunity represented by Internet technology were the discount brokers. Charles Schwab launched E.Schwab in 1995, but it wasn't technically an Internet trading platform, as customers (through dial-up modems) actually logged into Schwab's in-house computer system. E*Trade, begun in 1992, was the first true Internet trading platform. The early discount brokers didn't offer very deep discounts by today's standards. The first firms to offer Internet trading often did so for as much as $45 per trade plus a percentage of the trade's value. Again, E*Trade was the innovator and managed to lower the cost of trading to $14.95 per trade by the end of 1996. Today's online investment brokers offer very sophisticated trading platforms, voluminous research and access to investment strategies the average investor was barred from just 15 years ago. The investment community has truly experienced an Internet revolution.
Types
-
Though online stockbrokers are the most common online investment brokers, they are certainly not the only type. There are online commodities brokers, online currency brokers and online FOREX brokers. Most people who invest in real estate start their property search with the online Multiple Listing Service (MLS). The Internet has become the first stop for most investors when it comes to investment research and strategy.
Effects
-
The popularity of online investment brokers has forced a sea change in even the full service brokerage industry. The deep discounts available through online investment brokers have forced brokerage commissions and fees lower industry-wide. It is becoming standard practice among full service firms to no longer charge commissions on individual transactions but to charge a small annual management fee on the total assets an investor has under the firm's management.
Benefits
-
Perhaps the greatest benefit of the online investment brokers is the access to information by individual investors that simply did not exist before the Internet. Overall, the investing public is better educated less dependent on the advice of a full-service broker.
Warning
-
Unfortunately, the Internet is a haven for con artists. Nowhere is this more prevalent than in the online investment community. Never invest with an online investment broker that is unlicensed or uninsured by the SIPC.
-
Related Searches
Resources
- Photo Credit E*Trade
