Tuesday, June 17, 2008 9:25:46 AM
Who here has not made this mistake?
Personal Finance Notebook: Look before you leap into online trade
By Claudia Buck - cbuck@sacbee.com
Published 12:00 am PDT Tuesday, June 17, 2008
Q: I made a serious mistake recently when ordering a stock options trade on Scottrade. Instead of choosing "Sell," I picked "Buy" – and instead of specifying a quantity of 10 contracts, I specified 1,000.
The result: In seven minutes and 35 seconds, I lost $50,000 and some market maker made a killing.
There is no doubt I made a mistake when ordering this trade, but I am shocked that Scottrade does not have certain checks and balances to protect the customer from such an obvious and disastrous mistake.
In the past, I have traded with online broker sites Brown & Co. and Interactive Brokers,and both contacted me by phone before allowing trades they had doubts about.
There should be some type of screening, whether it be automated or manual, prior to orders going through. If this was the case, there is no way I would have agreed with the illogical trade I entered. Why was this ridiculous, upside-down trade allowed to go through?
– Naresh J., Antelope
A: What you've described is every online investor's worst nightmare: With one errant click of a computer mouse, a five-figure nest egg is deleted. Presumably forever.
As you discovered, it's "buyer beware" when it comes to online trading.
"We love the Internet because it makes everything accessible," said Mark Leyes, spokesman for the state Department of Corporations. "But, unfortunately, there's no live broker saying 'Are you sure you want to do that?' "
There are about a dozen top online brokerages in the United States, offering discounts and the ability to log on and execute stock trades while sitting at home at your personal computer. According to Jupiter Research, 17.2 million U.S. households had online brokerage accounts at the end of 2004.
Although Scottrade was not able to discuss your specific account, it did confirm the basic details of your transaction.
"It is very important that individual investors who are trading online review their orders carefully," said Kelly Doria, public relations manager for Scottrade Inc., based in St. Louis. "Any trades that are placed online or through a broker in one of our branch offices are solely at the discretion of the customer."
Doria said that when investors enter a transaction on Scottrade's Web site, they are required to specify the type of order (buy, sell, sell short, etc.), the number of shares, the ticker symbol and the order type (market, limit, stop limit, etc.). Once those fields are entered, there's a "Review Order" button that shows the entire transaction with a choice to "place," "change" or "cancel" the order.
As soon as someone hits the "Place Order," it's a done deal.
"If the order is entitled to an immediate execution, there is nothing the customer or Scottrade can do to cancel the order," Doria said.
Indeed, in your correspondence with Scottrade, one of their compliance officers noted that "Scottrade had no way to determine that the original buy order entered was not your true intentions. Additionally, your account had sufficient funds to place this transaction."
The company noted it was able to get 20 of your contracts "busted" or reversed, reducing your overall loss to about $50,000.
Although I'm sure it's no consolation, Scottrade has earned high marks in recent years in consumer rankings of online investment companies. Last year, J.D. Powers rated it No. 1 in customer satisfaction and trade execution, compared with E-Trade, Charles Schwab, TDAmeritrade and others.
Nevertheless, mistakes happen.
The SEC and other online trading sites remind investors to be cautious when executing trades on their own.
According to the SEC's Web site: "If you cancel an order, make sure the cancellation worked before placing another trade. Some investors have mistakenly assumed that their orders have not been executed and place another order."
That could mean they wind up either owning twice as much stock as they wanted or selling stock they do not own.
Talk with your online brokerage firm ahead of time about how to handle a situation where you are unsure if your original order was executed.
31-38
Personal Finance Notebook: Look before you leap into online trade
By Claudia Buck - cbuck@sacbee.com
Published 12:00 am PDT Tuesday, June 17, 2008
Q: I made a serious mistake recently when ordering a stock options trade on Scottrade. Instead of choosing "Sell," I picked "Buy" – and instead of specifying a quantity of 10 contracts, I specified 1,000.
The result: In seven minutes and 35 seconds, I lost $50,000 and some market maker made a killing.
There is no doubt I made a mistake when ordering this trade, but I am shocked that Scottrade does not have certain checks and balances to protect the customer from such an obvious and disastrous mistake.
In the past, I have traded with online broker sites Brown & Co. and Interactive Brokers,and both contacted me by phone before allowing trades they had doubts about.
There should be some type of screening, whether it be automated or manual, prior to orders going through. If this was the case, there is no way I would have agreed with the illogical trade I entered. Why was this ridiculous, upside-down trade allowed to go through?
– Naresh J., Antelope
A: What you've described is every online investor's worst nightmare: With one errant click of a computer mouse, a five-figure nest egg is deleted. Presumably forever.
As you discovered, it's "buyer beware" when it comes to online trading.
"We love the Internet because it makes everything accessible," said Mark Leyes, spokesman for the state Department of Corporations. "But, unfortunately, there's no live broker saying 'Are you sure you want to do that?' "
There are about a dozen top online brokerages in the United States, offering discounts and the ability to log on and execute stock trades while sitting at home at your personal computer. According to Jupiter Research, 17.2 million U.S. households had online brokerage accounts at the end of 2004.
Although Scottrade was not able to discuss your specific account, it did confirm the basic details of your transaction.
"It is very important that individual investors who are trading online review their orders carefully," said Kelly Doria, public relations manager for Scottrade Inc., based in St. Louis. "Any trades that are placed online or through a broker in one of our branch offices are solely at the discretion of the customer."
Doria said that when investors enter a transaction on Scottrade's Web site, they are required to specify the type of order (buy, sell, sell short, etc.), the number of shares, the ticker symbol and the order type (market, limit, stop limit, etc.). Once those fields are entered, there's a "Review Order" button that shows the entire transaction with a choice to "place," "change" or "cancel" the order.
As soon as someone hits the "Place Order," it's a done deal.
"If the order is entitled to an immediate execution, there is nothing the customer or Scottrade can do to cancel the order," Doria said.
Indeed, in your correspondence with Scottrade, one of their compliance officers noted that "Scottrade had no way to determine that the original buy order entered was not your true intentions. Additionally, your account had sufficient funds to place this transaction."
The company noted it was able to get 20 of your contracts "busted" or reversed, reducing your overall loss to about $50,000.
Although I'm sure it's no consolation, Scottrade has earned high marks in recent years in consumer rankings of online investment companies. Last year, J.D. Powers rated it No. 1 in customer satisfaction and trade execution, compared with E-Trade, Charles Schwab, TDAmeritrade and others.
Nevertheless, mistakes happen.
The SEC and other online trading sites remind investors to be cautious when executing trades on their own.
According to the SEC's Web site: "If you cancel an order, make sure the cancellation worked before placing another trade. Some investors have mistakenly assumed that their orders have not been executed and place another order."
That could mean they wind up either owning twice as much stock as they wanted or selling stock they do not own.
Talk with your online brokerage firm ahead of time about how to handle a situation where you are unsure if your original order was executed.
31-38
BECAUSE YOU CAN READ THIS, THANK A TEACHER. BECAUSE IT'S IN ENGLISH, THANK A SOLDIER.
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