For better or for worse, the Internet was credited with playing a significant role in Wall Street's record rebound this week.
As New York Stock Exchange and Nasdaq volumes soared to respective records of 1.2 billion and 1.4 billion shares Tuesday, the spotlight on occasionally sluggish Internet trading revealed a transformation in the way millions of small-time investors buy and sell stocks.
Many online investors have encountered delays on the Internet and busy signals on telephone backup systems since Monday's disastrous plunge. While such delays cost some investors many thousands of dollars, without Internet trading their problems might have only been worse.
Piper Jaffray analyst Bill Burnham said in an interview yesterday, "If you step back from the last two days and think back to [the stock market crash of] 1987, the Internet wasn't even around. And in 1987 a lot of brokers didn't even pick up the phone."
Burnham noted that online investing firms, in contrast to individual brokers, were able to process multiple trades simultaneously. "The fastest way to get a trade done, if you were a small trader, was over the Internet or through a touch-tone phone," he said.
In addition to being a comparatively efficient way to execute trades, the Internet was primarily the tool of the group credited with fueling the rebound: amateur investors.
Those investors are using the Internet not only to trade inexpensively, but also to find information and tools normally supplied by a full-service brokerage.
The information and resources available to online investors are so vast that at least one site has launched with the express purpose of organizing and evaluating such knowledge. CyberInvest.com, which launched this June, selects sites that offer interactive content and educational material and groups them according to categories including IPOs, DPOs, brokers, banks, mutual funds, interest rates, market monitors, and news.
CyberInvest director of business development Jon Squire said, "We wanted to have a site so you could see at a glance what features an online service had, use it, and come back to us for more."
The site, which earns its revenue from advertising, plans to add message boards within a week and chat rooms within three weeks. Within the next three months, it plans to offer online trading capabilities of its own.
Another online investing guide is InvestorGuide.
The increasing popularity of online investing appears to be driven by the desire of small investors who want to save money while investing. The resources aggregated on a site like CyberInvest may help those investors do just that. People who want to be able to trade instantly during periods of high volume, however, may have to lower their expectations.
Burnham said: "If your livelihood depends on being able to execute a trade a minute, you shouldn't be trading online. And a lot of people paying $8 to $10 a trade are starting to expect to have the same level of service that a professional trader has. But you don't get something for nothing, and that's why brokerage firms spend tens of millions of dollars on their systems every year."
Burnham nonetheless agreed that online brokers need to continue upgrading their systems.
"In the mean time this is the best thing going," he said. "It's not perfect. Maybe one day it will be, and then all the brokers will be out of business."