Online brokerage houses have been gaining ascendancy as the public becomes more familiar with using the Internet and more willing to undertake trading in this new medium. Investors find a number of advantages in online trading, including lower costs, more personal involvement, and convenience. There can also be disadvantages, including a lack of personal attention and personal service and the need for the investor to do more of his own research.
A report in 1996 stated that investors had opened 1.5 million online accounts, about twice as many as analysts had projected just two years before, and it was estimated that by 2001, the number of online accounts will soar to 10 million. The primary reason for this increase was price. If an investor buys 500 shares of a $50 stock, he or she pays about $425 in commissions at a full service broker, or about $155 at a discount broker. By making the same trade electronically with a discount broker through a direct dial up connection, and the investor pays only about $35. If the investor is willing to go through a World Wide Web site, the cost can be as little as $12. Another reason for the increase is convenience. If the investor uses a full service broker, he or she usually must call during office hours to make a trade. With online trading, the investor can check his or her holdings and enter an order any time of day or night. When the investor's instructions have been executed by the broker's computer, the investor gets an electronic message confirming the trade. Online trading is also generally faster and more accurate than placing an order by phone because the person who writes down phoned in instructions and the "wire operator" who keys it into the automated system can both make mistakes. When the investor trades online, he or she types the information directly into the system and can review it before sending it off (Harris 195).
A typical trading day in 1997 involved 95,0...