The Wall Street Journal Online's Guide to Online Investing: How to Make the Most of the Internet in a Bull or Bear Market

Trading Stocks Online It started out as a curiosity, quickly became a fad-and now it's a revolution. The simple act of tapping a stock trade into a personal computer has transformed a multi-billion-dollar industry. The biggest names on Wall Street have had to tear up their business plans. "My broker says" has been replaced by "I read on the Net." Some of this interest will be fleeting. The public's fixation with stocks and trading clearly was stoked by the historic bull market that swept stocks higher through much of the 1990s. As investors have seen since then, it is a lot more fun to talk about stocks-and easier to make money trading them-when prices seem to do nothing but rise. A long bear market for stocks (or even a period of stagnation where prices barely move) takes the glamour out of trading. For some time, many on Wall Street bet that a bear market would quickly snuff out online investing. (In fact, the Internet itself was considered a fad at first. Many predicted that interest in the Net would quickly fade out-a 1990s version of America's brief 1970s infatuation with citizens band radios.) But that talk petered out as Internet-accessible brokerage firms posted year after year of growth in customer accounts, even when the market struggled. Charles Schwab & Co. (www.schwab.com) was the first established brokerage firm to embrace the Net, and it quickly saw thousands of its clients give up its toll-free phone lines and place their orders online. By the end of 2000, more than 80% of its stock trades came in over the Net, and across the industry, roughly one in five stock trades originated from orders that were placed online. In 2001, there were more than 20 million online brokerage accounts, up from just 1.5 million in 1996, according to Gomez Advisors, an Internet consulting firm in Lincoln, Massachusetts. The number of accounts is expected to top 50 million in 2004, estimates Forrester Research in Cambridge, Massachusetts. As if any more evidence were needed that Wall Street couldn't afford to remain aloof from online investing, Schwab's total stock market value edged above that of Merrill Lynch & Co. (www.ml.com) in late 1998. If there is one measuring stick that always has Wall Street's attention without fail, it is the stock market. Schwab, a discount-brokerage firm barely 25 years old, was king of the hill. The fun didn't last for Schwab, though. Its value plunged when the stock market soured, falling back to half of Merrill's level. Trading volume shriveled on Wall Street-online and off-line-when the late 1990s tech-stock bubble burst. And online firms, whose earnings depend more on commission income than big investment banks like Merrill, saw their share prices plunge. But even as investors traded less frequently, they still were opening new online accounts. Schwab alone, amid the slump, added 600,000 active customers in one twelve-month stretch. Investors sought more advice from the brokers and account growth leveled, but there weren't any signs that large numbers were fleeing back to traditional, old-line brokers. Few people expect online stock trading to go away. Even Merrill is deeply committed to online trading. The phenomenon has clearly touched a nerve with the investing public and tapped into investors' desires to use technology as a means to accomplish things cheaper and faster. "Take my word, it's really easy," said Charles Schwab, founder of the company that bears his name. "Even I can do it, and I'm all thumbs." Mr. Schwab called online trading "the ultimate empowerment of the individual." As Home Depot discovered, we really are a nation of do-it-yourselfers-whether it's hanging wallpaper or buying a stock. FIRST AND FOREMOST: IT'S CHEAP There are many reasons to trade online, but the most obvious one-and the one that first caught the attention of investors-remains its biggesPettit, Dave is the author of 'The Wall Street Journal Online's Guide to Online Investing: How to Make the Most of the Internet in a Bull or Bear Market', published 2002 under ISBN 9780609807385 and ISBN 0609807382.