| The online stock brokerage industry has become | | | | You'll have to dig even further through the fine print |
| fiercely competitive in recent years, which is all to the | | | | to discover their many hidden fees, such as its $40 |
| good for traders. Competition has led to plummeting | | | | quarterly "account service fee," its low balance fee, |
| prices, new features, and better service overall. | | | | and its inactivity fee. Their shiny, attractive-looking |
| Unfortunately, it has also led to some | | | | advertisements neglect to mention these as well. |
| less-than-desirable business practices by some of the | | | | Rest assured that your billing statements will not, |
| larger brokerages. | | | | however. |
| Hidden fees, confusing commission schedules, | | | | All too Commonplace |
| misleading advertising, ever-changing policies, shifting | | | | Regrettably, Etrade is hardly the only brokerage to |
| margin rates, poor executions, conflicts of interest in | | | | engage in these sorts of practices. Bank of America |
| order routing, "snapping up" stop-loss orders, making | | | | Brokerage advertises its "free" stock trading program |
| markets with excessive spread sizes -- these are | | | | heavily, but you'll have to dig through the fine print to |
| just a few of the ways stock brokers can take | | | | learn that you must have $25,000 in BOFA's deposit |
| money from your pocket and put it into their own, | | | | accounts (i.e. checking or savings, not your brokerage |
| and individual traders are most often none-the-wiser. | | | | account) in order to get them. Naturally, these |
| The Old Bait and Switch | | | | deposit accounts pay some of the worst interest |
| The most common example by far is misleading | | | | rates in the entire banking industry. |
| advertising. Run a Google search for anything related | | | | Other examples abound. Typically, the larger |
| to trading, and chances are you'll see lots of ads | | | | companies are the worst offenders. Faced with an |
| from various stock brokers touting their low | | | | ever-growing crop of smaller, more efficient |
| commissions. Better read the fine print before signing | | | | competitors offering better and better service at |
| up, however. | | | | rates the big boys simply can't match, they have |
| Take Etrade, for example. They have flooded the | | | | turned to attempting to pull the wool over your |
| Web with ads proclaiming $6.99 stock trades. Of | | | | eyes. Don't fall for it. |
| course, nowhere in these advertisements does it | | | | Word to the Wise |
| mention exactly what one must do to qualify for this | | | | Be sure to investigate the terms and conditions |
| commission level. That information is buried on a | | | | extremely thoroughly before you sign up for any |
| difficult-to-find page on Etrade's Web site. If you do | | | | brokerage account. The better outfits are up-front |
| manage to hunt it down, you'll discover that in order | | | | about their conditions and limitations. If there is even |
| to get that rate, you need to make 1500 trades per | | | | a single asterisk on any of their advertising materials, |
| quarter. You read that right -- | | | | watch out! An asterisk means "we really hope you |
| one-thousand-five-hundred trades. That's an average | | | | don't read this, but our lawyers made us put it here." |
| of over 12 trades every single day. Even at their | | | | Any time a brokerage hopes you don't read |
| lowest commission level, that will run you $84 per | | | | something, it's best to disappoint them. |
| day, or a whopping $2,500 per month. | | | | This applies doubly for smaller investors. For a small |
| Even their second-tier rate of $9.99 requires a | | | | account, paying too much in commissions can easily |
| $50,000 minimum balance. Otherwise you must pay | | | | turn a winning year into a losing year. Lastly, repeat |
| their standard commission of $12.99, which is quite | | | | this mantra to yourself: Big companies are for big |
| high by current standards for online discount brokers. | | | | accounts. If you have less than $100,000 to invest, |
| Even at $9.99, Etrade's commission is twice as much | | | | you'd be far better served at a small, independent |
| as the rate offered by several other brokers with no | | | | brokerage which is focused on serving investors like |
| minimum balance at all. | | | | you. |