Online Investing

The stock market has been a part of people's lives for centuries. Investors all around the world have taken advantage of this trend and some even invest as a hobby rather than just to make a profit. Since the initial stages of online trading, more people have been investing their money in stocks than ever before because of the ease and advantage that it offers.

Online trading has really taken off due to consumers being able to trade stocks without the help of a broker, which allows the investor to have more control over their transactions accompanied with the benefit of purchasing shares at a lower cost. There are numerous online trading agencies and each seem to offer a different charge for purchasing stock. With the increasing popularity of online trading will come additional companies which in return will force other agencies to lower there costs even more. Online trading is effective because it saves time, money and gives power back to the investor.

The Internet is a near-perfect tool for investing, with such qualities including: The constant and worldwide availability of the Internet and its ease of use and availability of various forms of customer support. I regularly use Sharebuilder.com as my online investing agent and as a novice trader I find the website to be very user friendly and enjoy the presentation of my gains and losses which are updated daily as well as the listing of future Initial Public Offerings (IPO's). There are numerous online investors to date and large firms that were originally against online trading but have now jumped aboard.

Available technology has created this new online environment and investors are taking advantage of this new trend, which appeared out of reach to them in the past. In the first six months of 2000, 3.8 million new accounts were opened, and online trading surged 87% compared to a year prior (Goldberg). However, investing online does not diminish the importance of evaluating potential investment decisions and researching the fundamentals of a stock, such as a company's net earnings, P/E ratio, beta, the products a company offers and the market in which it competes (H&R Block). However, the same technology responsible for the increase of online investing also has the capacity to raise market risks, as well as create new risks. Another mistake is that many investors believe that investing is a way to get rich quick.

Investors are always looking for the next hot stock and are willing to follow every stock tip and rumor given. American history is filled with true stories of how the Rockefellers, Carnegies, Gould's and the many other entrepreneurs that have made their legacy come alive on Wall Street. It is possible to become rich but in reality it is even more possible to become poor. Consumers in the DOT.com era were just about guaranteed to make a profit, but in this era IPO's rise fast and drop just as quick. There is no real get rich quick scheme in the stock market and when consumers lose money it is because the problem lies with the consumer's lack of knowledge of what types of stock are available. Too often investors think about common stock because that is what they are used to seeing and hearing about on a daily basis.

Common stock is sold by both old and new companies and raises capital to fund operations. Common stocks give shareholders a right to dividends and even allow them to vote on issues that could greatly affect the company. Dividends however are paid at the discretion of the board of directors. Preferred stock however is different from common stock due to the fact that preferred stock owners cannot vote on issues regarding an organizations management and unlike common stock holders they receive a fixed dividend. Investors find preferred stock more attractive because when an interest rate is high, higher dividends are paid to stockholders. But regardless of what type of stock is purchased, and investor must still be completely aware of where and how they are investing their money, failure to due so could result in a potential loss of funds.

"As online investing became popular, Merrill Lynch as well as many others avoided it, although they had developed a major presence via the Internet by offering account information, research, bill payment and quotes, but they avoided trading. Merrill Lynch initially felt that "online investment or "the do-it-yourself model of investing centered on Internet trading, was a serious threat to Americans' financial lives." (Levinsohn, 34). Merrill Lynch was and still is an established financial management company, yet they felt as if they were too established to jump on the online investing trend due to what harm it would have caused if it were to fail. Many of the online trading companies did not begin as financial management only businesses. Many of them were joint ventures created by large corporations whom could afford to take a loss if the venture were to fail. If Merrill Lynch would have initially jumped aboard this trend and it were to fail then it would have hurt their creditability and possibly the future of their company. Those that branched out into the online investment business are currently well established and flourishing.

Softbank, a Japanese company, acquired 15.6 million shares of E-Trade, and together the two firms formed E*Trade. Softbank is now the largest shareholder in Yahoo Japan and has a 4% stake in Yahoo Inc. It has holdings in a wide range of Internet and finance-sector businesses (some quite small), including 39% of Softbank Investments (Ketupa). E*Trade, a top online brokerage company, currently has more than 3.5 million account holders who have the capability to trade stock over the Internet (the majority of transactions) and by phone (Yahoo). E*Trade offers online retail banking, mutual funds, and stock trading and purchasing services. E*Trade's corporate office is located in San Francisco, California and is one of the top online trading services in the United States. E*Trade at this point feels that they are fully established in the U.S. and are ready to expand their services to 10 countries in Europe, Australia, and the Pacific Rim.

After many brokers shunned online investing, consumers still have made their demands heard by making this trend increase each year since its initial existence and it is currently at an all time high. There are still a few consumers that are skeptical due to their fear of losing money rather than gaining it. The reasons for the large losses are due to investors unclear planning and inexperience in the investment field. "Research shows that one quarter of online investors proceed without any clear plan in place and there is often confusion about the importance of asset allocation as a fundamental planning tool" (Anonymous).

The Federal Trade Commission (FTC) receives