There are surely some investors who, mauled by the stock market swoon a few years ago, took their toys and went home. They perhaps closed out the remnants of their brokerage accounts or just left them unattended. These folks, should they decide to give stock market investing another try (a more thoughtful and cautious try, of course), may find that brokerages these days, especially online ones, have changed a bit -- and largely for the better.
Let's first define who we're talking about. Major online brokerages include E*Trade
For starters, brokerages are now classifying their customers into groups. Those who trade a lot (and who therefore generate the lion's share of profits) are offered extras such as lower commissions and dedicated customer service representatives. A New York Times article cited a Forrester Research report that found that 10% of most brokerages' clients produce 90% of revenues. Active traders are being wooed with services such as the ability to trade options. Fidelity has even introduced a way to combine a call and a put order.
Brokerages are also competing to offer the fastest trade executions. It's not uncommon now to find out not only that your order has been placed but how many seconds it took to get filled. (This doesn't seem particularly critical for most Foolish investors, though -- would waiting two minutes or 45 seconds instead of six seconds really make that much difference?) E*Trade guarantees execution within two seconds or it will waive the commission fee. At this rate, brokerages will soon be executing our trades before we even place them.
Some brokerages are permitting investors to set points at which holdings might be bought or sold, such as once a stock rises or falls by a specified percentage. Other brokerages are rolling out advisory services to help customers with their personal finance goals and strategies. (Your friends at the Fool have even done this -- check out a free trial of our personal financial advisory service, TMF Money Advisor.)
The online brokerage business is also picking up. According to Michael Vinciquerra, an analyst with Raymond James, trading volume for the seven brokerages listed above jumped a whopping 40% in the fourth quarter of 2003 vs. the year-earlier quarter, while Nasdaq trading volume only inched up some 6%. This suggests that there's a lot of activity happening at online brokerages -- especially compared with their offline brethren.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.