On- Line Trading in a Snap, with Ameritrade
Written: Mar 01 '04 (Updated May 27 '09)
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Pros: Trading commissions are fair; Some good research tools
Cons: Lots of hidden fees; Quarterly charges if your balance falls below $2,000
The Bottom Line: Ameritrade is a pretty good on- line brokerage service, but it's not the best in the business
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| Bryan_Carey's Full Review: Ameritrade |
Buying and selling stock used to present somewhat of a hassle for investors. To get started, you needed to establish a relationship with a knowledgeable broker- a process that could take considerable time and effort. There were very few means (besides employee stock purchase plans, DRIPS, etc.) to buy stock without finding a stock broker, establishing an account, and paying the fees associated with brokerage services.
But times have changed. Today, an individual can buy and sell stock right from the comfort of his/her home. All one needs is a personal computer with internet access to logon to one of the many on- line brokerage services and start trading shares. And one service that most people are familiar with is Ameritrade, an on- line discount broker that makes stock trading simple.
Features of This Service:
Ameritrade is an on- line brokerage service that can be used to execute stock trades and other investment services. Here’s a quick summary of the types of accounts you can setup on- line, with Ameritrade:
Standard Account- If you are logging into Ameritrade for the first time, chances are you are coming here to setup a basic account. Standard accounts include individual investment accounts, joint accounts, tenants in common accounts, UGMA accounts, etc. There is sometimes, but not always, a minimum required balance of $2,000 to get started (it depends on the terms offered to you when you sign up).
IRA Account- Ordinary IRA, Roth IRA, Rollover IRA, and others can be setup and managed at Ameritrade, with a minimum starting balance of $1,000.
Specialty Accounts- Here, you will find unique investment arrangements like Trusts, Investment Clubs, Partnerships, etc. The minimum required balance here is $1,000.
Ameritrade also offers the option of setting up a margin account, with a required minimum of $2,000. But you need to be careful, with margin trading- if a margin call takes place and your stock value has fallen below the specified level in your contract (usually 50 percent), you will have to quickly send in more money to get your account back up to the margin requirement.
User Tools:
Ameritrade is mostly a self- directed type of service, and much of what you need to research companies and select investments can be found in the web site. Some of the options are free, and others carry a charge for the use of the service.
One tool that is offered free to all Ameritrade users is Ameritrade Streamer. This offers real- time stock and option quotes, information on recent trades and most active stock lists, and much more. It can also be customized to send you, the investor, alerts when certain securities reach a specific level. Investment and company research is also available free to all clients.
Other tools offered by Ameritrade carry a fee. These include such devices as Market Analyzer, Market Edge, and others. These specialized research tools carry a charge of about $19.95 per month, so they should only be used by investors who are serious about utilizing them to make investments.
Costs/Fees:
Ameritrade’s fees can change at any time, so the following rates should only be considered as rough estimates. For an internet trade with no assistance, the commission is $10.99. If you use the phone and call in your trade using the voice response system, the commission per trade is $14.99. If you need to talk to a broker, the commission charge will be $24.99 for a market order or $29.99 for a limit order (where you tell Ameritrade not to make a sale or purchase unless the price reaches a certain specified level). These rates are fairly competitive and they are right in line with other on- line brokerage services.
If your sale or purchase involves something besides stock, the fee schedule is different. For mutual funds, the fee is $17.99 to buy, sell, or exchange. The only exception is in the case of a load fund (one that normally charges a fee to make a purchase). With these, there is no commission charge to buy a fund. Stock options can also be purchased through Ameritrade, at the cost of $10.99 for an internet trade, plus $1.50 per contract; $14.99 for a voice response trade, plus $1.50 per contract; $24.99 for a broker- assisted trade, plus $1.50 per contract; and $29.99 for a limit order, plus $1.50 per contract. Bond sales and purchases carry a fee of $5.00 per bond if you buy or sell 1 to 50 bonds; $2.50 per bond if you buy or sell 51 or more bonds; and a flat rate of $25 if you buy or sell treasury bonds. The minimum total commission charge for a non- Treasury bond transaction is $40.
In addition to these trading fees, Ameritrade also charges quarterly fees to its members whose accounts fall below $2,000. The fee is currently at $15. Thus, unless you are certain that you can maintain a balance at $2,000 or higher, Ameritrade might not be a wise place to put your money.
Customer Service:
Ameritrade personnel are standing by 24 hours per day (except on holidays when the market is not open for trading) to help you with any concerns about your account or the web site itself. You can either call with a question or send an e-mail. If it is late in the day, a phone call will usually get the quickest response. During daytime hours when the phone lines are busier, it is often just as quick and simple to send an e-mail.
Final Thoughts:
Ameritrade is the first on- line brokerage service I ever had the pleasure of knowing. After receiving offers in the mail about this service, and its low- cost brokerage fees of only $8 for a market order, I went ahead and established an account on- line, back in (I believe) 1998. There was no other special deal going on at the time with Ameritrade, but that was fine with me. The low $8 fee was what attracted me to the site and what made my trades worthwhile.
My experience with Ameritrade over the years was a mixed blessing. I liked the low- cost trading, and the site was easy enough to use. Remembering how to make a trade was easy and I was fairly satisfied with what I was getting for my money. I used the basic stock research tool, which was (and still is) free to all members. It helped me to locate a few bargain priced stocks that I would have otherwise not known about. Trades went through very quickly (usually less than one minute from the time I placed the order) and the site was easy to navigate.
One thing that I noticed has changed over the past several years is the addition of many more user fees. Ameritrade has increased its basic commission rate per trade (not really a surprise- other on- line brokers have done the same thing) and it now has a long list of hidden and additional fees that can sneak up on you and diminish the value of your account. The fees and commissions listed above are pretty standard and are expected for any type of brokerage account. But these are only the minimum fees that you can expect to be charged by Ameritrade. Other hidden fees include $2 per month to have an account statement mailed to you; $10 plus 35 cents per $1,000 charged if your payment for a transaction is received late; $5 to have a check mailed to an alternative address; and many more. The fees aren’t excessive, but they can really add up over time. What’s worse, if you have a balance that is very near the $2,000 threshold and you incur these fees, it could be enough to drop your balance below the $2,000 level, which means you will be assessed a $15 fee per quarter until the balance is back above $2,000.
To see how these fees can add up, let’s assume you have a balance of $1,500 and you receive a monthly statement from Ameritrade in the mail. The total fees you would be charged would equal $84 ($60 in quarterly fees for having a low balance and $24 in fees for having your statement mailed to you). This might not seem excessive, but if your balance is only $1,500, the fees charged to your account will reduce its value by 5.6 percent. Given the weak performance of the stock market over the past few years, 5.6 percent is a significant amount of money to lose for these types of fees. At the very least, users of Ameritrade should eliminate monthly statements completely. The charge of $2 isn’t worth it. You can easily elect to get your statements e-mailed to you at no charge. Besides, you can logon at any time and check your account balance and activity. So there is really no need for paper statements at all.
To entice new investors, Ameritrade has been known to offer what often sounds like a very tempting deal. The one I have seen most frequently is the Ameritrade offer of "(fill in the blank) # free trades" when you open an account. There are several variations on this offer, but they all carry the same basic deal. Usually, there is a time limit to use up these free trades and sometimes there is a larger than average minimum balance required to open an account with one of these offers. If you’re the type who only makes an occasional trade, then chances are you won’t utilize the free trade offer before the time expires. If you do decide to accept an offer like this, don’t be suckered into making more trades that you otherwise would make, just to use up the free trade offer. The commissions that you pay will easily erase any potential gains that you could have made if you held onto the shares.
Ameritrade offers a few additional services now that it didn’t have in the more distant past, like direct downloads to Quicken and Microsoft Money and the new Ameritrade Exchange Traded Funds Center (informs you about this latest trend in investing- ETF’s- a fund that is tied to a specific stock index that trades like a stock). Ameritrade has even added a 5- second guarantee. If your market order is not executed within 5 seconds, the transaction is commission- free. This doesn’t apply to all stocks- only to a select few. It is designed to get investors to feel more confident that the price they receive is as close as possible to what it was when the trade was executed.
Today, I no longer use my Ameritrade account. My place of employment established a special deal with E- Trade that makes trading a breeze and very cheap. So, I will likely stick with E- Trade for the foreseeable future. With all of the fees that Ameritrade charges, the service isn’t quite the bargain that it once was. But taken as a whole, Ameritrade is still a pretty good on- line brokerage service. It’s not the best choice for novice investors and others who need a little more personal guidance before they make an investment decision. But it does provide a good way to make on- line trades with relative ease.
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