Or, a crash course in online discount brokers.
This is a long one, so go get your hot chocolate (or other drink of choice) and get
I had some extra money and I decided last month to use it to invest in stocks. Up
until then, my only exposure to the stock market had been my 401k and my company's
stock purchase plan. Last month seemed ideal because good reports were coming in all
around about the economy.
Because my stock purchase plan is through e*Trade's OptionsLink, and because their fees aren't bad
($12.95 per trade), I decided to use e*Trade as my
broker, but because they have a $1,000 account funding minimum, I had to wait until I
had that much extra lying around, which turned out to be last month (September, 2003).
In order to avoid wire transfer fees, I mailed in a personal check. Five days later,
the funds were available. This was, in my estimation, too slow by about two or three
days. Dock one point from e*Trade.
My stock of choice was Intel.
Long story short, I believe the stock is undervalued and it should double in two to
three years. So I placed my order, but instead of $12.95 for the trade, they charged a
total of $22.95! It turns out e*Trade charges $19.95 for NASDAQ stocks, and there's an
extra hidden $3 fee. Before I can see a profit on a stock trade, the combined value of
the shares has to rise above the cost of the transaction. Dock another point from
So with the long wait between mailing a check and the funds being deposited into my
account, and with all the fees, I decided there had to be something better, especially
for shorter term holdings. Doing a little online research, I found an article
comparing the various online brokers. Using their table of
ratings, I chose Firstrade, in part because of
the lower transaction fees. Score one point for Firstrade.
As with e*Trade, I mailed a check. However, this time it took seven (7) days for the
money to show up in my account. Oh well, big deal, a difference of two days. Dock
half a point from Firstrade.
I placed my orders, and... they were rejected. All three of them. No explanation was
given. Hmm, I thought, maybe a glitch. So I tried again the next day. Rejected. What
good is a broker if they keep rejecting your orders? Dock one point from Firstrade
for not giving a reason. Well, I thought, this was a good time to test their
customer service (one reason I chose Firstrade in the first place). They replied the
same day (score one for Firstrade) and stated that the reason my orders were
rejected was because they were waiting for my check to clear, and it was going to take
ten days. From the date they deposited my check.
Ten days! After waiting seven for them just to receive my check! Clearly, Firstrade
wasn't going to be the short-term, diverse portfolio I was hoping for. Dock two big
ugly points from Firstrade for being overly paranoid about their own clients. But
it gets worse.
It Gets Worse
This time I chose AMD, General
Dynamics, and Amazon
). With the lower fees, I felt I could diversify a little better than with e*Trade, for the same amount of money to invest.
Between the time I originally tried to place my order and the time my check finally
cleared and the trade finally went through, those three stocks had all risen in value
by an average of 10.6% each! (AMD alone was up 20%.) I guess I'm really good at picking
stocks but really bad at picking brokers. Anyway, to try to get a better deal, I placed
limit orders (don't trade until the stock goes back down below $x) on all three stocks.
Expensive mistake, because it turns out Firstrade charges an extra $5 for a limit
order. (This was my own fault for not reading the fee schedule, so no points taken.) And because I had already calculated my
trades pretty close to my account limit, the extra fees caused my account to be $10
overdrawn after the trades.
Now that didn't make sense. My trades wouldn't go through earlier because my funds
hadn't cleared and therefore I effectively didn't have any money in my account, but
they went through now despite not having enough in my account. Dock a half point
from Firstrade for stupidity.
Read the fine print! Get a list of fees, and find out how personal checks are
handled. As it stands, I'm not sure which of the two will be my main broker. In the end, it's been an educational, if not expensive, experience.
Update (Thursday October 16, @01:33PM): At this moment, about a week after that ill-fated trade, my Firstrade stocks have risen enough to start showing an overall profit on the three transactions. Thanks to all who expressed their sympathies.
Update (Wednesday November 19, @2:43PM): Two other intriguing brokers are Freetrade (free, but with some important footnotes to read first) and ShareBuilder (an inexpensive investing program similar to a 401k).