Putting your money where your mouse is

DALLAS — The cost of buying a stock has never been cheaper.

A vicious price war is raging among online brokerages as they scramble to attract and keep customers. That has squeezed the profit margins of the online brokerage firms, but consumers can benefit.

Cyberinvestors now can buy thousands of shares of their favorite stock and pay commissions in many cases of $10 or less per trade.

“Investors are getting deals now that could not have been imagined a few years ago,” said Roger Riney, chief executive of Scottrade Inc., a closely held St. Louis discount broker.

Scottrade offers one of the lowest commission rates — $7 per trade — but all the major online firms have slashed prices. Charles Schwab Corp., the largest online broker, cut its commission rate recently to $12.95 per trade from $19.95

Similarly, Fidelity has reduced its commission to $19.95 from $29.99, and it’s even lower for more active traders.

By comparison, some of the major, full-service brokerage houses still charge commissions of $100 or more.

Online trading exploded during the late 1990s as the dot-com craze swept through Wall Street and then Main Street. Hundreds of online brokerage firms sprouted during this period.

After the Internet bubble collapsed in the spring of 2000, many of these firms were purchased or closed. Today, six firms account for about 80 percent of all the online-trading volume.

But another round of consolidation could be under way. In mid-June, Ameritrade Holding Corp. announced a $2.9 billion deal to buy TD Waterhouse Group Inc.

So enjoy the low, low prices while you can. Consolidation will mean less competition, which could mean less need for discounting.

“What you have seen over the past year or so is a mini-price war break out,” said Timothy Carpenter, senior analyst at Watchfire Gomez/Pro, which tracks online trading.

Competition is forcing the higher-end firms to become more like the lower-end firms and vice versa, he said. Fidelity still has by far the most in-depth, sophisticated research, but most of the firms now offer independent research and other offerings.

E-Trade Financial Corp., for example, now operates an online bank and mortgage business.

“We are building out our investing, banking and lending platform,” said Michael Curcio, vice president of trading for E-Trade. “Customers can move money among their stock trading accounts, checking accounts and money market accounts.”

Some investors may be hesitant to trade stocks over the Internet and prefer face-to-face contact with actual brokers. But increasingly online brokers are becoming more accessible to average investors, and most of them are opening real brick-and-mortar offices.

“All of the firms have enhanced their operations, trying to find a way to differentiate themselves from their competitors,” said Mike Vinciquerra, an online analyst at Raymond James & Associates.

Scottrade Inc., one of the fastest-growing discount firms, has 1.1 million online customer accounts, but it also has 230 offices throughout the United States. That’s more than double the number of offices at Fidelity. Scottrade plans to open 30 to 40 more branches this year.

“Even customers who trade online find it comforting to know there is a Scottrade office a couple miles away,” said Riney, of Scottrade. “They can come by and drop off a check or make a deposit of stock into the account. They use the branches quite a bit.”

Also, online brokers are offering more “bells and whistles” on their Web sites to help customers better understand investing and trading. For example, now most of the firms offer a cost-basis feature, which helps customers answer the most important question of all: “How are my stocks doing?”

This feature shows what a customer originally paid for a stock and then calculates the profit or loss. A couple of years ago, only the largest firms offered this feature.

Many of the firms offer financial planning and retirement help with the click of a mouse. Customers can trade options, mutual funds and exchange-traded funds as easily as they do stock.

“As these products have gotten more popular, online brokers are offering them,” Vinciquerra said.