E*Trade's (NYSE:ET) results for the second quarter are relatively impressive from an earnings-per-share perspective. Net income on a diluted basis came in at $123 million ($0.31 per share), compared with last year's diluted income of $13 million ($0.03 per share). One couldn't argue with such appreciation, or the fact that guidance has been raised.

However, there are certain elements within this complicated report that bear further scrutiny. Take a look at the line called "Diluted income per share from continuing operations." You'll see that the EPS there is equal to $0.24 for this year's second quarter, versus $0.03 for the same frame in 2003; this is due to certain transaction effects not related to normal core business dealings that are backed out, such as the sale of specific assets. That's still an excellent jump, but it is obviously not the wider spread seen in the generally accepted accounting principles' figures.

Let's look at daily average trades. They may have increased 9% when compared with last year's statistics, but they represent a decrease of 19% on a sequential quarterly basis. Retail investors are getting spooked by the choppy markets and the possibility of an overvalued tech sector, there's no question about that (heck, so am I to a degree).

Margin debt this quarter increased 107% compared with last year; compared with the previous quarter, this metric is up 8%. These numbers don't come as a surprise, given the recent bullish activity of market players since the Iraq invasion. OK, leverage of this kind is most definitely not Foolish; do not borrow to buy stocks. However, I do have to say that it is a positive for E*Trade, since increased borrowings equal increased revenues. Speaking of revenues, the company reported that net revenues increased a dismal 3%.

So, let's think about this: If you want to buy into the discount brokerage sector, should you take a position in E*Trade, Charles Schwab (NYSE:SCH), or Ameritrade (NASDAQ:AMTD)? Roger Nusbaum wrote about Ameritrade's excellent quarter, while Nathan Slaughter examined Schwab's not-so-excellent earnings report (among other things).

To begin with, all investors must realize that Alan Greenspan will be taking rates higher; one increase has already gone through. In my opinion, this makes the sector risky. It especially makes E*Trade risky because the company has a significant banking and mortgage component. In fact, I initiated a position in E*Trade last summer at an average cost basis of about $9.50 and sold back in March of this year somewhere around $14 per share. My rationale? I knew the upcoming tightening cycle might hurt the market and this sector, so I decided to harvest profits (I was looking for E*Trade to be a double within a year, but I eventually realized that I was to be proven incorrect).

E*Trade will probably do well as the timeline progresses, especially considering its overall diversity in terms of financial services. Ameritrade, however, seems to be firing on more cylinders at the moment. Schwab just isn't on my list, because of its CEO issues, but it might make for an interesting bet somewhere down the line (it does pay a dividend, it should be noted, as opposed to the others). So, for a short-term growth play I might go with Ameritrade; longer term, I'm a bigger believer in E*Trade. Of course, all Fools out there must make up their own minds and perform their own due diligence.

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Fool contributor Steven Mallas owns none of the companies mentioned.