Sign in Subscribe
Commercial banks

The Rise of Online Trading: A Growing Threat to Traditional Brokers

Strategic Insights

— 1 min read

As the internet continues to revolutionize the way people invest in the stock market, a growing number of individuals are taking control of their financial decisions by using online trading platforms. According to an article in the November issue of Money magazine, by the end of 1998, 28 percent of all stock trades will be handled by online brokers, up from less than 10 percent in 1996. This shift in consumer behavior is forcing traditional brokers to reevaluate their services and compete with online discount brokers who offer lower commissions and easier accessibility.

Key Takeaways:

  • James Ide, a certified public accountant, has been trading online since April and is part of a growing number of individuals who handle Wall Street accounts on their own over the internet.
  • By the end of 1998, 28 percent of all stock trades will be handled by online brokers, up from less than 10 percent in 1996.
  • Local brokers, such as Gary Glover of Merrill Lynch and Mary Burt of Edward Jones, are not concerned about the impact of online trading, as they believe people will eventually seek professional advice as their investment portfolios grow.
  • Online trading platforms, such as American Express, ETRADE, and Fidelity, offer lower commissions and easier accessibility, making them an attractive option for price-conscious investors.
  • Discount traders, such as Brown and Company and National Discount Brokers, offer trades for $15 or less, but brokers warn that these platforms may not provide investors with the necessary information to make informed decisions.
  • Local brokers charge between $50 and $100 as a minimum fee for a trade, with fees averaging between 1 percent and 2 percent of the investment.

Statistics:

  • 28 percent of all stock trades will be handled by online brokers by the end of 1998.
  • Less than 10 percent of all stock trades were handled by online brokers in 1996.
  • Online trading platforms have lower commissions, with rates ranging from $15 to $30.
  • Discount traders offer trades for $15 or less.
  • Local brokers charge between $50 and $100 as a minimum fee for a trade, with fees averaging between 1 percent and 2 percent of the investment.

Sources:

  • Money magazine, November issue (no date provided)
  • The Macon Telegraph (Macon, Ga.) article, "The Rise of Online Trading" (no date provided)
  • Knight Ridder/Tribune.

Read more