Online stock trading should be a pleasant experience.
Click the mouse, buy a few shares, wait a few minutes, sell a few shares, make a little money. Sounds great!
Stock trading online isn’t like that (you didn’t think I was going to say something different, did you?).
No, online stock market trading can be challenging. What happens when you lose your internet connection. Ever clicked an order confirmation on accident? Has your cat or kid placed an order for you? Don’t laugh, cats can, and do, walk easily across the keyboard, kids can punch buttons even easier.
Keep this thought in mind about trading online . Drum roll, please .
You get what you pay for.
Here’s a couple stories about my own online trading experiences and the stock brokers that go with them, if you can relate to either of these stories, you’ll understand why paying for great online stock brokers is not really expensive.
My worst online trading experience was back in the days when Iomega traded with the symbol, IOMG.
Way back in September of ’96. I bought 500 shares at $22.500 and sold out half an hour later for a $437 profit. So far so good.
A couple of days later, IOMG is trading around $24ish at the open, I buy 500 shares using a limit order at the bid and am filled quickly. I immediately place a sell order at the ask and am filled quickly.
Jackpot! All I need to do is buy the bid then turn around and sell at the ask. A few minutes later I repeat the process. After the first half hour, I am up a half a point on two 500 share trades. Start doing the math . $250 every half hour, 6.5 hours in the trading day . $1625 for the day.
Guess what happens next, try the same trick. But instead of going up, the stock goes down. I have the mind about me to get out with a half point loss on 500 shares. Since the days still young I’m not about to give up so easily. IOMG drops a little more, I buy my 500 shares and sell $0.75 higher. I’m back in the grove.
Still a couple of hours left, place my 500 share order to buy on the bid, get filled . instead of placing the order to sell a quarter point higher, I am waiting for the stock to go above the day’s high, more than a dollar higher. Well, I had my chance to make a quarter point more than once, but no, I’m holding out. With about an hour left in the trading day, IOMG is about $0.50 down from where I last bought it. How dare it do that! I tell myself, I’ll close the position at breakeven. I get my chance to get out at breakeven. Then I have a change of heart, time to make that money I have been planning on. Whoops, IOMG is down a $1.00 from where I bought it.
You know where this story is going.
I place a limit order to sell an eighth above the current price, if I’m filled I lose $500. I check my order a few minutes later and find I’m not filled and IOMG is now down $2.00. Finally, I come to my senses and decide enough is enough. I place an order to sell at the market finally admitting I’m wrong and taking the $1000 lose. I step a way from the computer, go outside for a short walk, come back in to see how bad the damage is.
I logon and find out my market order was canceled . Guess where IOMG is now, down $4.00 from my entry. After I finally figure out that the broker’s online system will not allow two similar open orders (remember, I didn’t cancel my sell limit order, I just added a sell at the market order), I cancel all the orders I have and sell at the market taking a $2000 loss.
Ouch! I call the stock broker and raise holy hell about their lousy system. That was my totally out of control trade.
Here’s the buy order on the last trade . buy 500 IOMG at $26.500
Here’s the damage after selling more than $4 below the buy price . online trading at it’s worst
Of course, the results are my responsibility. Don’t be fooled by my complaining, it was my fault for not understanding the stock broker’s system.
Compare that horror story with this one .
This online trading story starts out as a horror story but finishes favorably.
Wanted to buy Ameripath Inc on June 29th, 2001 using a stop limit order above the previous day’s high price of $30.406 only if it opened less then the previous day’s high.
On June 29th, PATH opens less then the previous day’s high and I place my order, a stop limit order with the stop price at $30.510 and a limit price of $30.610.
Went about my business for the rest of the day.
Later that evening I check to see if I am filled on my order. Order confirmation shows I bought 100 shares at $30.610.
Check a time and sales report. Notice that the time says the order was filled at 16:54:14.
Red lights start flashing. 16:54:14 is AFTER the market closes. Search around on the web and find out that the NASDAQ stock market was closed for a couple of hours and decided to extend trading for an extra hour.
My order was a day order only, as far as I am concerned, the trading day ends at 4PM eastern!
When you take a look at the time and sales report, notice not only the time (after 4PM) but the bid price. The bid price is $29.280. My buy order was filled at $30.610. The bid/ask spread is over a $1. During the “normal” trading day, the bid/ask spread was less then $0.20. I feel a little market maker manipulation!
I check the time and sales report for all the trades prior to my order being filled. Remember, I had a stop limit order. As far as I know, a trade has to occur at or greater than the stop price before my order becomes a limit order. No trades occurred at or greater than my stop price of $30.510 before I was filled. Yes, the offer price was greater than $30.510, but no actual trade occurred.
So this online trading experience isn’t looking so good!
On Monday, I bite the bullet and sell the stock, taking a $200+ loss.
I accept that situations like this occur. I sure don’t like it though!
I call the broker and explain what I think happened .
My buy stop order should not have been filled when it was since there was no trade greater than my stop price prior to my limit order being filled. Market closes at 4PM, not 5PM. And the not so subtle bid/ask widening at the end of trading.
After more then a few emails and phone calls, the broker, without admitting any wrong doing, breaks the trade.
Whether I am completely right is not the point.
The broker realizes that my business with them is important. And yes, this broker charges more then the previously mentioned online trading experience.
So, my experiences with Charles Schwab have left me with more money then “the other” broker that charges less for commissions.
Remember, like a lot of things in life, stock trading online is no different . you get what you pay for.
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