I spend more time on Ameritrade than Epinions--Comprehensive Review
Written: Feb 07 '01
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Pros: cheap, serves needs, quick enough, great options rates
Cons: pointless if you don't know anything about the stock market
The Bottom Line: Great for someone who knows enough about the market and knows other sources to find research. Awesome for complex options.
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| chicknyell's Full Review: Ameritrade |
When I finally decided to leave my broker and invest on my own (smartest decision I have ever made), I went to Ameritrade. Unlike millionaire "corporate-world" people, I am a mere college student. Thus, I wanted something that would give me all the trading I needed to do without the huge cost. Ameritrade surely fit the bill, and since I am generally an advocate of long-term buy and hold versus day-trading, Ameritrade was fine speed-wise and option-wise.
Application
As far as I know, anyone can apply for an account with Ameritrade. A minor might have to sign up with a custodial account or through the universal gift to minors act account, but other than that I do not think there are any real limits (I guess if you are in jail or make your living as a crack dealer it may be harder to get margin approval, but a cash account probably won't be hard).
To apply, one must simply fill out one of the various applications. These can be obtained by calling Ameritrade (1-800-669-3900) or going to www.ameritrade.com and printing out an application (maybe you can fill one out online). Along with the application must be some money. Right now I think that Ameritrade's minimum for cash account is only $500. Just a precaution: the name on your check must be IDENTICAL to the name you sign up for on the account. If you sign up under the name William Peter LaGrangia III and your check says Bill LaGrangia III, it just will not cut it.
The application is very easy to fill out, but if you have any questions about what various investment terms mean, simply call Ameritrade. I also would suggest calling an Ameritrade representative before submitting your final application and making sure everything that you need is included. Taking five minutes to do this will save weeks of investing time if you messed something up.
After filling out the application, it takes a couple of weeks for everything to through. If you sent the minimum amount, you will easily be approved for a cash account. You will get a welcome package explaining some market terms and some Ameritrade site navigation stuff. You do not receive your actual pin number at this time (to use Ameritrade online), but you will be able to make phone trades through an Ameritrade representative. To be honest, I never got my pin number. I called Ameritrade and was told I should have it by that time. I eventually guessed my pin (I still feel that Ameritrade is secure) and was on my way to online trading.
Ease of Site Use
The site is fairly easy to use. You simply go to ameritrade and click to go to the login screen. On the login screen you simply have to put in your account number and password. To trade is extremely easy. There is a link and a tab that say "Trade." Clicking this leads to the trade screen which is very straight forward with tabs that say "Buy, Sell, etc."
The account information screen is also quite easy to use. Simply click and follow the clearly marked links. Your Ameritrade handbook explains what all the terms mean, of course. Similarly, for quotes, all you must do is press on stock quotes and enter it into the screen.
My only complaint about ease of site use is looking for Ameritrade information. For instance, most stocks have a margin equity percentage (don't ask) of 30%, but a stock I owned had one of 50%. No one ever informed me of this until it was too late and it almost cost me quite a bit of money. I searched everywhere for this information and it took me some really creative link following to find where on the site it informed me of the 50% amount. Some of the handbooks, such as the options handbook, also are not easy to find on the site.
Trading
On Ameritrade, one can trade in all the major indices during and after market hours. A market order, which is the easiest to perform, generally takes me about thirty seconds. What this is is an order to buy or sell a stock at its current market price. (For instance, if I wanted Rambus, Inc. shares, I would simply type in RMBS and tell Ameritrade I wanted it at market price.) Under 500 shares, my transactions have never taken over a minute for a market order for either equity or options.
Limit orders are a bit different, but Ameritrade makes it simple. To get a limit order for 500 shares of Rambus, Inc. I would click the shares, whether I wanted to buy or sell and bubble in "limit." A limit to sell means you will only sell for a certain price (I currently have a limit to sell RMBS at $200), while a limit to buy means you will only buy the stock for lower than a certain price. Basically you are set into a computer and when the price of the stock hits your limit, the trade takes place. This can take minutes are weeks depending on the how the stock price moves. You can choose "day" (which means if it doesn't hit the price by the end of the day the order is cancelled) or "good to cancel" (setting your limit order until you cancel it, the price goes to the amount, or the end of the month, whichever is first). There are strategic reasons for limits such as automatic buying/selling without babysitting or making sure you don't get screwed on an order. These cost an extra $5.
I have only used afterhours trading once, but it worked quite well. You simply go to trade and will get the warning that afterhours trading is not always reliable, etc., etc. You are then taking a chance that someone wants to sell the stock you want to buy or vice versa. This is basically a smaller trading session, so it takes a little longer (it is intranetwork of shares trading hands from one individual to another). There is no extra cost for afterhours trading.
Margin Accounts
A margin account basically is borrowing money to buy stocks. As far as I know, you can borrow up to twice of what you put into the account, but this amount somehow seems to vary as the value of my portfolio varies. Basically, you may want to borrow a bit from Ameritrade, but you have to keep in mind that Ameritrade (and any company) can liquidate borrowed shares at any time. I have used my margin account a bit and am begining to regret it. So just be careful and keep in touch with Ameritrade if using margin.
To open a margin account, one must feel out a margin approval form. Basically approval is going to come on the amount you have in your account and nothing else, though they do ask your plans, your trading experience, etc. I am not positive, but I think that $10,000 is the minimum amount of cash you can have in your account to get margin approval. I suggest not doing it until you get a better understanding of the market and Ameritrade. To get margin approval, you can apply with the initial application or you can apply later by printing an application from the Ameritrade account.
Option Trading
Ameritrade also offers an option account (also applied for seperately). I am no option expert, so I will simply say what type are offered. For covered puts and calls, it is easy to get approval. You can buy and sell them very easy on their option page. It is harder to get uncovered put and call approval. Spreads and straddles are also possible as well as other advanced options. Option trading is extremely cheap and extremely quick on Ameritrade, but there is the disadvantage of not enough guidance on complex option trading.
Fees
This is probably Ameritrade's biggest plus. There are a couple of discount brokerage firms that are cheaper, but for the most part Ameritrade is as cheap as you will get. Aside from special introductory rates as low as $4 or even free, most trades will cost between $8 and $23. At the time of this writing, market orders cost $8 if done online and $12 if done over a touch-tone phone. Both of these require a pin number. Without a pin number, it costs $18 for a market order through a live broker (remember, these brokers will not give advice, they just handle trades). If you want a limit to buy or sell, simply add $5 to the base. Thus, the most you can expect to pay on one trade (buying at a limit and selling at a limit) is $46 over the phone. The lowest between buying and selling will be as low as $16. Through my "real" broker, I once paid over $400 total on just meager profit.
Option trading is also cheap. Option trading on Ameritrade recently went down in rates. Over the internet, it is only $8 plus $1.75 per contract. Thus a 3 contract option costs 13.25 (my math may be fuzzy there, sorry). Anyway, it is extremely cheap since the base rate used to be $20. I am not sure what it is via touchtone or over the phone, but I assume that it is still very cheap. Overall Ameritrade is one of the best sites to trade options for very cheap.
Quotes and Research
Ameritrade is great for its real-time quotes. At first I started with 100 quotes per trade, but after you make a certain amount of trades it is free. Until you get unlimited real time quotes, I would only use this to make a transaction. Otherwise just use Yahoo or Moneycentral.com. Overall, though, Ameritrade is great for its real-time stock and option quotes.
Unfortunately, research is not really a very strong point of Ameritrade. I have never found Ameritrade's research useful at all. They do not carry nearly as many news sources as AOL or Yahoo or MoneyCentral. Sometimes there will be a semi-major news story that comes out that does not even register on Ameritrade. This is not really important for a long-term philosophy, as all the truely earth-shattering stories will be displayed, but for people who are following a stock very closely, this type of news research is not very good.
Pre-buying information also is not that great. For instance, analysts opinions or even earnings estimates are not really that great. More research can be found for free on MoneyCentral than on Ameritrade. I assume there are other pay sites with a great cache of research, but then again that trades probably are not as much of a bargain. Basically, use Ameritrade for its cheap rates, but find research other places.
As on the commercials, though, you can at least get major news, stock splits, or sells transactions (from your limit orders) via email. This can also go to certain cellular phones or pagers. This is one major plus of Ameritrade if you do not want to sit and check your stock every day. When the really major news hits you will be informed via email giving you more time to do OTHER things besides checking your stock everyday (since Ameritrade does that for you).
Customer Service
Customer service at Ameritrade gets an A+ from me. I never, ever have sat on hold after opening my account. Someone answers immediately to answer my question, and they never place judgement no matter how stupid the question may be. They are there to answer questions from your balance information to a general question about trading or about option to helping you out if you accidentally borrowed too much from them. They also are helpful in tracking checks or wires to Ameritrade. (By the way, wiring money to them is the way to go).
Final Word
If you know enough to trade on your own and you do not need every intimate detail about a stock or about technical analysis, then there is no reason not to go with Ameritrade. From the cheap rates to the llama salesmen working the customer service desk, this is a perfect discount brokerage. It is easy to navigate and just as quick as most brokerages yet it costs a fraction of the cost. It even beats most discount brokerages. But, with the exception of email alerts, Ameritrade will do very little to help someone who is clueless about the market. Likewise, Ameritrade is pointless for an investor or daytrader who wants every nit-picky detail about a stock as it does not include any major research. Overall, if you just want a cheap place to trade and are pretty sure about your trades, go wth Ameritrade. But if you are totally new or want majorly complex research or even majorly complex trades, then you are better off going with a full-paying broker. Another alternative is to use Ameritrade for its low cost but pay for research on another site (or use the free one's, such as MoneyCentral and the Motley Fool--especially their message boards).
Basically, Ameritrade is for 90% of investors who know enough about the market to not need a full-broker and have the time to spend to carry out trades and personal research (which could be very little if you just buy a couple of stocks and hold for a year). Unfortunately, 90% of newbies need some experience with reading and maybe fake trading before using Ameritrade, putting their money with a full-broker in the meantime. Good luck investing!!!
Recommended:
Yes
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chicknyell
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