Jim Pelkey used to call his broker frantically the moment he heard breaking news about a company whose stock he wished to buy. A small investor by Wall Street's measure, Pelkey often had to try several times before getting through, hoping, in the meantime, that the stock wouldn't cool by the time his broker placed the order. For this the Cupertino, California, resident paid a commission of around $70 a trade.
But that changed after he opened an account with an electronic brokerage service called E*TRADE Securities www.etrade.com) which uses the Internet, rather than a traditional broker, to buy and sell stocks. Using E*TRADE and his personal computer, Pelkey makes his own trades anytime, without a broker. At $19.95 a transaction, he also gets free stock quotes, free market reports and even free checking. "I used to feel like a lamb being led to slaughter. Now I'm the one who feels empowered," says Pelkey.
E*TRADE, as well as Lombard Institutional Brokerage www.lombard.com and discount pioneer Charles Schwab www.schwab.com) is part of the next wave of brokerages that are shaking up the Wall Street establishment by trading stocks and bonds in cyberspace. Unlike traditional securities firms that operate out of storefronts and office buildings, this new breed connects to its customers mostly through PCs.
Elsewhere on the Net, online forums such as the Motley Fool are breaking Wall Street's monopoly on information, and rumors, about companies and their business prospects. Drawing more than 200,000 visits a month, it is the most prominent of a growing number of online sites, such as the Silicon Investor www.techstocks.com or the newsgroup misc.invest.stocks, where investors can ask questions and share knowledge.
Currently the upstart brokerages account for less than 1% of all the 640 million shares traded daily, but they also account for nearly 100% of the anxiety that the big Wall Street firms are feeling as technology reduces the complex world of securities to its barest minimum--carrying out a transaction. Wall Street's role then becomes something on the order of checkout clerk. This comes at a time when more and more investors are buying stocks. At one point less than 5% of Americans owned stocks; now more than 20% do.
As increasing numbers of investors take financial matters into their own hands, trading companies such as E*TRADE are expected to proliferate. The number of brokerage houses offering electronic trading has nearly doubled in the past year--to 22--including Jack White & Co. and National Discount Brokers. There are already 650,000 active online brokerage accounts, compared with 413,000 in 1995. By 2000, predicts Mary Doyle, senior analyst of mass-market interactive services at IDC/Link Resources, there will be 1.5 million online accounts. Says she: "The days are over when brokers called all the shots, controlled customers' accounts and charged whatever commission they saw fit. Investors are plugging in and taking charge."