When the market does fall, online brokerages should theoretically be equipped to handle four times as many trades as they currently process without a hiccup. But so far the hiccups won't go away. The sites for Schwab and E*Trade each went down five times earlier this year. E*Trade already faces several class-action lawsuits, and after customers complained that inaccessible sites caused them to lose money, regulators in New York began investigating the industry.
Because online brokerages have substantially upgraded their Internet and phone capacity, regulators may be more inclined to see investor behavior and misleading advertising by some online brokerages as the key issues. Earlier this year the Securities and Exchange Commission rebuked investors for trading online too quickly and too often. E-commerce analyst Bill Burnham of Credit Suisse First Boston predicts the SEC will require brokerages to post warnings to investors online that they aren't necessarily guaranteed access to the market at all times.
Still, in the next massive market sell-off, the best place for an investor to make trades will be online, says Burnham. "The traditional broker is only one human being with all these people calling him, whereas tens of thousands of trades can be processed at once online."
Still, in the next massive market sell-off, the best place for an investor to make trades will be online, says Burnham. "The traditional broker is only one human being with all these people calling him, whereas tens of thousands of trades can be processed at once online."
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