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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (34463)	11/30/1999 8:48:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

Stop me before I trade again pathfinder.com Find out why some online brokers are quietly reigning in their best customers. -- By Borzou Daragahi You're trading fast and furious with your online broker. But just about every trade you place drags you deeper toward the nadir of financial ruin. Maybe you trade too frequently, follow rumors, or heed bad advice. Like the bartender who gently suggests that maybe you've had enough martinis for the night, will your broker alert you before you fall into oblivion? Most Internet brokers have declined to take on such a role. But some have quietly built in warning mechanisms (outside of calls for settling margin accounts, which jeopardize the bottom line of the brokerage as well as that of the investor) to let investors know they're in trouble. DLJ Direct, for example, sends a warning letter or e-mail to an investor who has lost a certain amount of money. Charles Schwab monitors its customer's trading activity and might call someone who's has suddenly increased his or her trading volume. And though it doesn't intervene in its customers' trading, National Discount Brokers does provide a link from its web site to a service that helps compulsive online investors. Until now, online brokers have not had to bother with all the investor suitability requirements of their full-service brethren. But they are starting to pay attention, even as Federal regulators are edging toward more strictly regulating online brokers. This week the Securities and Exchange Commission released the a 115-page report recommending that online brokerages better scrutinize the suitability of investments for certain investors, as well as taking other steps that benefit online traders. Still, the SEC acknowledged in the report that "online customers do not want registered representatives interfering with their trading." By contrast, full-service brokers have long been obligated to keep an eye on their client's portfolios. Prudential Securities, which charges investors a fixed percentage of their assets rather than commissions, calls investors who appear to be in trouble, whether they opt to trade online or not. "There is a menu of actions that might trigger the firm to make a call," said Susan Atran, a spokeswoman. "If we see that a client is making investments that are inconsistent with their stated goals, or if we see some kind of excessive options or commodities trading, or a steep loss, you would get a phone call from someone you know." Online brokers that specifically cater to hyperactive traders also have systems in place to alert clients suffering steep declines. "When a customer has a loss [exceeding] a certain threshold, they hit speed bumps," said Mark Stryker, CEO of CyberCorp, an Austin, Texas online brokerage. "Those speed bumps are opportunities for awareness and intervention by the staff." If any of CyberCorp's 2,000 customers suffer a one-day loss of 10% or more, they receive an e-mail. If the loss exceeds 20%, they receive an instant message through their browser. Anything more than a 25% decline triggers a phone call to the client. Schwab, the leading online broker, says it screens incoming orders based on certain criteria, which may change day to day, such as the number of trades or the total cost of the trades. If something unusual starts happening in a customer's account, someone will give that customer a call. "There is a software system in place," said Sarah Bulgatz, a Schwab spokeswoman. "We try to catch irregularities on the front end." On the other hand, some online brokers say that a warning alert Cybercorp's or Schwab's might insult their customers' sense of rugged individualism, and even frighten libertarian-minded netizens ever wary of Big Brother. "Most of the investors that we've got and that I talk to are very self-directed," said Gregg Sharenow, the co-COO of NDB. "A lot of people may not appreciate a broker contacting them and getting in between their strategy." Most discount online brokers also say they're in the business of placing trades, not giving advice. "Since 1975," an Ameritrade spokesperson said, "we've not made any recommendations as we've executed trades for self-directed investors." In other words, trader beware. Investors who don't have access to a coddling broker can institute their own warning mechanisms by going to free sites like Strategy.com, which lets you set up phone, pager or e-mail alerts corresponding to dips and peaks in your portfolio. Most investors would probably do well to heed the words of SEC Chairman Arthur Leavitt, who asserted back in May that "investor protection--at its most basic and effective level--starts with the investor."