Friday, June 25, 2004

E*Trade Flat Fee Trading...Not So Fast

In just 3 years, I've gone from not even knowing how to get started investing to a good understanding of technical analysis. My trades all executed with either E*Trade Securities, LLC or Scottrade. I maintained my mutual funds and, early on, played with trading some lower priced stocks in an E*Trade account. Spending $19.99 for limit orders, trading frequently at E*Trade was difficult given the amount of money I had available (for active trading, a rountrip over 2% is too much) causing me to move active trading to Scottrade.

Somewhere along the way, E*Trade introduced an order processing fee. This meant that instead of paying $19.99 for a limit order, I was now paying $22.99 for that order. If E*Trade needs more money per trade to be profitable, I can understand that, but my issue with their move is that they continue to advertise trades at the lower dollar amount when clearly you will never pay that amount. Scottrade has a similar practice where they pass through some exchange fees on sales orders, but in their case, it is typically only $0.07.

After achieving a 10% profit in the 5 months leading up to the Iraq War, I took my small amount of money out of Scottrade to use to buy my wife a 10th anniversary present. Since then, my only equity trading account has been an E*Trade account. Today, I reviewed E*Trade's higher volume trading accounts to see if I could stick with one broker instead of maintaining multiple brokerage accounts. Unfortunately, I found out by reading the SMALL PRINT that I cannot.

E*Trade's Priority Account page tells all about $12.99 flat fee limit orders. It's still higher than $7 at Scottrade, but it might be worth it to deal only with one brokerage. Knowing after my order processing fee experience that there might be a catch, I scrolled down and found a link for additional information about the offer. Clicking the link revealed the real flat fee amongst other things.

E*Trade in fact intends for everyone to pay the $3 order processing fee. Even the Priority and Power E*Trade accounts carry the order processing fee as an extra. Additionally, they are not actually flat fees. E*Trade charges the normal rate of $19.99 until the customer reaches whatever trading quota has been met on the account. Once met, the fees switch to the lower rate and excessive charges are refunded at the end of the quarter. Additionally, there's a $0.01/share fee for orders over 5,000 shares.

So much for $12.99 flat fees.

Experts tell you early and often to read the fine print and see if a broker plans to nickel and dime you to death, but they often recommend E*Trade in the same breath. Let's call a spade a spade...E*Trade IS a "nickel and dime you to death" broker. It's unfortunate, too, as they have a lot of nice products and services and provide a nice place to centralize bank accounts, mortgages, loans, brokerage accounts, retirement, etc. Because of their good points, I will continue to use them, but I intend to keep all of my equity and options trading elsewhere.

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