The Internet and Investing Ignorance 2

The entire process of offer-bid matching is done electronically now. As such, the need for calling a broker to place an order in your name has virtually disappeared. Typically, a full-service broker is one who receives a phone call from a client wishing to place an order for a particular security, and who then passes that order on to the market. An online broker, on the other hand, allows investors to place their orders via a web interface, and those orders get sent directly to the market without an actual person ever seeing them. This is where the controversy which is the topic of this paper, results. The fact that nobody is standing by to monitor what investors do with their money is a problem. Howard Abell, Robert Koppel, and Ken Johnson are all trained professionals that have years of experience with the markets. Together they remark at how “the vast majority of Americans who owned stocks relied on a personal broker for advice, recommendations, and trade executions” (22). What they mean is that brokers were used for much more than placing orders for customers. They served as advisors, who, with a wealth of knowledge would inform clients about what their investment strategies should look like and what actions would help them become the most successful in the markets.


Trading on the stock market is a task that requires much skill and very little luck. Some people relate the act of investing to that of gambling. Brendon Seeto, in his book The Psychology of Online Trading, supports this notion by saying, “as consumers are given the opportunity to trade online, the difference between casinos and online trading companies has decreased” (43). For most newbie and inexperienced investors, investing practically is gambling. Most new investors haven’t the faintest idea as to what they are doing when they begin trading. Traditionally, this is where having a personal broker helped guide these individuals toward making smart investment choices. With the advent of electronic trading facilities, however, this added layer of investor security has disappeared almost entirely. There is much greater availability, as a result, for first-time investors to try their hands at the market, an activity that required too much time and money before online brokers made trading as cheap as $5 a trade. For about ten to twenty times that much, it is possible to have a trained professional review your portfolio, yet most people are not willing to pay a fee that is mammoth in comparison to the cost of making a trade. True, it is much cheaper to invest online without going through a certified professional, but the problem here is simply that- there is no professional guiding you through the experience. Dr. Victoria Collins, a Certified Financial Planner (CFP), relates newbie investors’ experiences in other facets of life to their enthusiasm to invest: “The idea of consulting a full-service broker or other professional for investment advice seems strange to them…because they’re used to being independent in other areas of their life” (InvestBeyond.com 11). These first-timers do not believe in asking for help—after all, they are grown-ups. Being an adult, however, does not mean that one is automatically bestowed with the wisdom to act in a capacity similar to that of, say a CFP. Such a title requires years of training, certifications, and licensures in order for a person to be deemed truly knowledgeable of what they are doing in the expansive world of money markets.





Works Cited
Abell, Howard, Robert Koppel, and Ken Johnson. The Sixth Market. Chicago: Dearborn Trade, 2000.
Carreon, Charles. "Mutual Funds." 401KInvestor.Net: Charles Carreon's Simple Guide To Investing. 9 Apr 2007 .
Collins, Victoria. InvestBeyond.com. Chicago: Dearborn, 2000.
Goodchild, John, and Clive Callow. Double Takes. Chichester, England: John Wiley and Sons Ltd, 2000.
Masonson, Leslie N. Day Trading on the Edge. New York: Amacom, 2001.
Pasternak, Melvin. "Technicals versus Fundamentals." Street Authority. 18 Apr 2007 http://www.streetauthority.com/terms/t/technicals.as>.
Seeto, Brandon C W. The Psychology of Electronic Trading. Singapore: John Wiley and Sons (Asia) Pte Ltd, 2004.
Thomsett, Michael C. Mastering Online Investing. Chicago: Financial Publishing, Inc., 2000.