Newsletter
of the Washington College Department of Business Management |
Spring
2000
The
Daly Bulletin: Want
to trade stocks online?
by
Professor James Janke
Online stock trading is booming. People are opening 15,000 new
online trading accounts every day. One in six trades in the stock
market is completed online. Ten percent of all brokerage accounts
are now online accounts and that percentage is expected to double
within two years. There are more than 100 brokerages offering
online accounts.
There are some distinct advantages to trading stocks online.
The primary advantage is the much lower transaction costs than
using a broker in person , even a discount broker. In addition
the trades are faster, you have easier access to trading and
account information, and there’s a wealth of stock analysis
and company information available.
But there are some dangers to online trading. Because online
trading is so easy, much cheaper, and even fun, investors who
switch from phone-based trading to online trading are likely
to become overconfident and more active. The change in trading
habits can seriously erode investment performance. If you are
going to go online, you need to be disciplined enough to stick
to your pre-online trading strategy and just exploit the lower
transaction costs offered by the technology.
Some useful references:
“Online Investors: Do the Slow Die First?” by Brad
Barber and Terrance Odean, UC- Davis: http://www.gsm.ucdavis.edu/~odean/papers/Online/Online.html
“The Internet and Online Trading,” U.S. Securities
and Exchange Commission:
http://www.sec.gov/consumer/jneton.htm
“Finance Resources on the World Wide Web,” Washington
College:
http://www.janke.washcoll.edu/Finance/resource.htm
Note: Prof Janke was recently interviewed about online day trading
by theWhiz.com, an online publication. Check out the interview
in “Is Day Trading a Crap Shoot?,” www.thewhiz.com/moneywhiz/investing/1999/10/991026.asp?web=whz.•