Personal Finance: Q&A

Cyber Wars Erupt Over Brokers' Web Fees

To research investments online, it helps to have an up-to-date computer

Q How do the costs of online stock trading compare with those of a traditional brokerage firm?

A Brokers are so eager to sell you stocks online that a price war has broken out.

In the last several months, the cost of a trade has fallen from about $50 to as little as $8. That compares with about $100 for similar transactions from a full-service broker.

The reason: Internet trading is inherently cheaper: no building to maintain, no operators to handle calls, not even phone calls to pay for.

"At eight bucks, I'm making money," says Michael Anderson, president of current price leader Ameritrade.

Here's how it works: Instead of phoning a brokerage house, a customer logs onto its Web site and enters the trade. The brokerage's computers ensure the customer has enough money, then moves the electronic order to the appropriate exchange, which handles the actual trade, then confirms it electronically.

Security is provided by customer passwords and high-tech data-scrambling.

About the only thing that's not automated is the sign-up process, which, by law, requires a signed application.

Fidelity started the battle by cutting commissions to $14.95 for active traders.

Q What kind of computer do I need to go online to research investments?

A Just about any computer that runs Internet browsing software. But if you're buying a new machine, you might as well get something that won't become immediately outdated, says John Bajkowski, editor of Computerized Investing, a bimonthly newsletter from the American Association of Individual Investors in Chicago. Some guidelines: a 166 megahertz Pentium processor chip (for a Windows computer; for an Apple, a Power Macintosh 7300), a 2-gigabyte hard drive, 32 megabytes of random-access memory, and a 36.6 modem.

Got a question about finances?

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Guy Halverson

The Christian Science Monitor

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